Your startup idea probably isn’t venture-scale
“Many investors will say that the total addressable market (TAM) size is the primary indication of ‘venture scale,’ but I disagree. You can have large TAMs that actually aren’t very good markets for startups, and smaller markets that can be expanded by the abilities of a talented startup with the right product offering.... See more
So instead I tell founders t
Lenny Rachitsky • Your startup idea probably isn’t venture-scale
The mistake is thinking your startup idea is venture-scale and getting on the VC treadmill. Once you’re on the treadmill, here’s what changes:
- High growth expectations: VCs are looking for companies that grow big enough fast enough. If your business isn’t suited to this kind of rapid growth, it can lead to undue pressure and unrealistic expectation
Lenny Rachitsky • Your startup idea probably isn’t venture-scale
1. Is my market big enough?
Do the math. What would have to be true for your business to reach $100M in revenue in one year? How many people would need to be using it (and/or paying for it), and how much should you need to make per user?
Do the math. What would have to be true for your business to reach $100M in revenue in one year? How many people would need to be using it (and/or paying for it), and how much should you need to make per user?
Lenny Rachitsky • Your startup idea probably isn’t venture-scale
I tell founders to think about the problem they’re solving, specifically my LUV framework:... See more
- Large: Is the problem you’re aiming to solve large enough—customers, users, spend, etc.?
- Urgent: Is the problem urgent to your users/customers—will they be interested in a new offering, change their way of solving this problem today?
- Valuable: Are people will
Lenny Rachitsky • Your startup idea probably isn’t venture-scale
A simple rule of thumb for what makes an idea venture-scale is having a path to $100 million a year in revenue and hitting $1 billion+ valuation , in 10 years . Essentially, can you get big, fast? This is what VCs need to invest in in order to make their fund economics work. Very few ideas can hit this scale, and it’s important that you recognize t... See more
Lenny Rachitsky • Your startup idea probably isn’t venture-scale
2. How much pain are you solving?
On a scale of 1 to 10, how painful is the status quo? Is it a 9-10, or is it 4-5? It’ll be hard to get people to pay a lot of money, or to switch from a good-enough product, if there isn’t a lot of pain.
On a scale of 1 to 10, how painful is the status quo? Is it a 9-10, or is it 4-5? It’ll be hard to get people to pay a lot of money, or to switch from a good-enough product, if there isn’t a lot of pain.
Lenny Rachitsky • Your startup idea probably isn’t venture-scale
To gauge the venture-scaliness of an idea, investors look for:
- Large enough market: Are there enough people (or companies) spending enough money for you to be able to generate $100M in revenue per year—and eventually $1B in revenue a year? This usually means that the total addressable market (TAM) needs to be $5B or more. And the bigger the better