Markets, Markets, and Markets

The same can be said of markets. Understanding how big a market really is can be difficult. But the act of attempted futurism can have a clarifying effect on your perspective.

Valuation, growth, burn, and ambition are all a function of the size of the opportunity.

I use the word arbitrage because we're not talking about different markets in different geographies. We're talking about different markets that exist in different people's minds. If I can fundamentally understand, and believe in, a market more clearly than any other investors then my equation can change in ways that give me an advantage.

Often, companies are underestimated because people believe the market isn't large enough, and the execution will have risks (e.g. Crowdstrike). So how does that translate into the valuation I can pay today? If you have a fundamentally different belief about the size of the market then you believe that the company will be able to address more custom... See more

"dominating the present with insights."

Again, this doesn't have to be a deep multi-year fundamental understanding of a market. This often comes from an appreciation of reality as it is . The internet is growing 2,300% and it seems to have legs. Building infrastructure is really hard, and we've gotten really good at it.

Amazon is the example I think of most often, because its not actually some magical event that gave Bezos any unfair advantage. It was simply appreciating the present as it was. I would also argue there were two examples of Amazon's journey that represented an arbitrage opportunity in terms of TAM. 

If you add a compounding effect on top of an already large number, it becomes very difficult to predict the size of future outcomes.

The second? In 2006, they had the idea that there would be advantages to hosting other people's applications and AWS was born. A few years later in 2008, the entire market for cloud computing was a little north of $5B. Today? AWS alone is generating over $80B in revenue.