The real reason why investors say your market size is small

Originally posted by kaliciawinchester

It’s super annoying when investors say your market size is small.  So, you do all this extra research – you look for Gartner’s excerpts and articles about projected market sizes, etc. – and you come back with research to argue that your market is much bigger.

Unfortunately, it’s ineffective.  The investor passes. And you walk away thinking he/she’s a dimwit.  This could be true, but it’s important to understand what is really happening here.

First, stop with the research.  It won’t help.

Here are the actual reasons why an investor passes when he/she says your market is small:

1. You are “in-between” multiple markets and are seemingly not addressing ANY market. 

Market trends change a lot, and sometimes a new market appears in between two existing ones.  However, because your company is early, investors don’t yet know if that market between markets will exist.

A good example of this is 500 Startups-backed Intercom.

When I first met them (when I was an entrepreneur), in the back of my mind, I was thinking, “Gosh, what are they actually addressing?  It’s a weird mix of customer service and marketing and sales.”

It turns out that a few years later, marketers were looking to build tighter rapport with their customers, and this tighter rapport really is a weird mix of marketing, sales, and customer service.  Now the company is doing really well! But when they first started, this was not clear at all.

In a situation like this, I commonly see entrepreneurs try to increase their market size by computing and adding the market sizes of all adjacent markets (e.g., the market size of marketing automation plus sales automation, and customer service software).

Found on Pinterest

In fact, what you really need to do is the opposite.  Pick just one market – say, marketing automation – and talk about the trend towards personalized marketing.  What helps with this is to go squarely head-to-head with an existing dinosaur product and say that you are going to overthrow that incumbent because of a, b, and c reasons.  For example, Marketo sucks because you need to spend 10 days learning their software only to spam non-personalized emails at your customers; we solve this by making 2-way communication easy within products themselves, which is the way of the future.

2. Your product / business does not sound differentiated enough / the investor doesn’t know anything about the space to discern differentiation.

Companies in certain verticals tend to have this problem more (e.g., ad tech, security tech, fashion, etc.).  Just as I, as a software investor, know nothing about solar panels or pharmaceuticals, not all software investors know most verticals well enough to understand what you’re talking about.

If you don’t need specialized knowledge to be able to see your company’s differentiator, then you need to practice and test your messaging on lots of people.

However, if you do need specialized knowledge to understand your differentiator, then you need to find the right investors to talk with.

A good rule of thumb here is that if you cannot visually show your differentiator to a random person on the street, you need a specialized investor.

Originally posted by 29only29

In the old days (i.e., 5 years ago or earlier), it was difficult to know which investors to approach because portfolios were not always online and there wasn’t a search engine for investors.  These days, AngelList can help you filter investors by category and look for investors in your space.

Now, the really hard part is if you are addressing a category that just doesn’t have that many investors.  Fashion and beauty, for example, is one that doesn’t have a lot of investors, though this is something we are actively changing at 500 Startups.  One of the best ways to navigate this is to talk to lots of entrepreneurs in your space who are further along than you.  Ask them for intros to their investors.  Ask them to meet other specific people in your space.  This may be a lot of work, but it is absolutely necessary.  Form tighter/deeper relationships in your space.

3) An investor doesn’t have conviction in you/your team.  

Lastly, a market size is “too small” is unfortunately often an explanation of what an investor thinks about you/your team.

This is especially true if you’re in a crowded market.  If you’re in a crowded market, you not only need to convey the point above well, but you also need to convince people that you’re a really solid leader.  Unfortunately, because of pattern matching, a lot of talented leaders who do not fit a typical mold really struggle with convincing investors of this.

Entrepreneurs who are introverts, of non-majority races, women, etc. tend to not fit these patterns and have to go above and beyond to convince an investor that they can win in a crowded market and that they have the right leadership abilities to win.

Keep in mind that “win” in an investor’s mind is not selling for $30M.  An investor is hoping its winners do 100x+ (obviously, this doesn’t happen most of the time, but this is what investors are looking for).  They are thinking about how you will become a $100m-$10B company, and at the seed level, the only thing they have to believe is if you and/or your team is the right person or people to get to this stage.

Fundraising pitches are not actually pitches

The startup industry should stop using the word “pitch.”  It suggests that entrepreneurs should go into an investor meeting with a deck and stand in front of the room and start presenting.

Originally posted by chippythedog

Doing a Demo Day or a startup pitch competition is NOT the same as a pitch meeting with an investor.  Yet, too many entrepreneurs think that this is what they are supposed to do when they walk into an office on Sand Hill Road.

An investor meeting is much more akin to a power struggle.

Only 50% of an investor meeting is about storytelling and conveying information about your business.  You can find all kinds of information on the web about what makes a good pitch.  The other 50% is about controlling the conversation – how you answer questions, how you address topics, what the power dynamics are in the meeting, etc.  This is the part about fundraising that no one talks about.

Originally posted by marci1900

When I was pitching LaunchBit, I followed all the common advice about creating an investor deck (in fact, you should have multiple decks).  I would go into investor meetings, go through my deck, and answer whatever questions an investor may have had throughout the conversation.  And I felt pretty pleased with myself.

Then one day, I pitched two seed partners at a VC firm.  I thought the meeting had gone well, but afterwards, one of the partners pulled me aside and said that although he was championing my deal, he was very disappointed in how the meeting went.  He said that it went horribly.  He said that the conversation went all over the place, and I had no control over it.

The conversation basically went like this:

Me: [Intro to LaunchBit.]  The market size is HUGE and…

VC: What about your team?  Do you have experience in email?

Me: [Talk about my team’s experience]…

VC: But what about how you acquire customers?

Me: We acquire customers by doing outbound sales, and we…

VC: But, the market just feels really small.

A good fundraising meeting will feel more like driving a car. You should not zig zag from Place A → Place D → Place C → Place A → Place B in an abrupt way.  You should start with topic A, finish it, and then move on to topic B, complete that, and then move on to topic C.

Originally posted by ellenameliaburke

Although you do not need a deck to raise seed money, this is why I like to use a deck in my conversations with seed investors.  It is a lot easier for me to remember all the points that I want to cover in a story that makes sense. If investors have questions that are not related to the particular slide you are covering, it’s easy to say, “That’s a great question.  I’m actually going to address that a couple of slides from now,” and then go back to completing your thought on whatever slide you’re on.

When you drive the conversation on your terms, it not only paints a more coherent story, but it also implies what your leadership ability is like.  It may not be a fair assessment of how you’ll lead a company, but with limited data points, this is what seed investors are paying attention to.

Make sure you are driving this car.

You should have 4 fundraising plans

When I was raising money for LaunchBit, sometimes my conversations with investors would go something like this:

Investor: So how much are you raising?

me: We’re raising $750k.

Investor: Really?  Why so little?  You should be raising $2M+ or even a series A.

Of course, the first thought in my head was, “Wtf?  I’m struggling here to just raise anything!”  But, of course, I couldn’t say that out loud, because then the investor might not want to back me.

Originally posted by gabys42

This kind of conversation happens a lot, though.  So what do you do?  You need to prepare four fundraising plans.  What would you do if you raise:

  • $0?
  • Below your target raise?
  • Your target raise?
  • Above your target raise?

What happens if you can’t raise at all?

First, let’s address the easiest scenario – what if you raise $0?  Do you bootstrap and attempt to raise again when you have made more progress?  Do you have family and friends who can help float you?

This is a situation you should always be prepared for whether you are actively fundraising or not.  Investors will likely even ask you this question as a hypothetical scenario to understand how you think about your business.

Investors want to invest in growth

The trickier situation is to prepare for the remaining three fundraising plans.

Taking a step back, it’s worthwhile to know that regardless of your stage, investors want to invest in growth.  To be clear, growth means increased revenue or increased number of users or customers (or both!).  It does NOT mean growth of your employee base!

Originally posted by rukudzom

With that in mind, you should understand clearly what lower and upper bound raises you’d be wiling to chase.  In other words, your lower and upper bound numbers should ALWAYS be raises where you could put the money to good use to grow the company.  Here’s a quick thought experiment:

For your upper bound number, if someone offered to invest $50M into your company, would you know how to deploy that money efficiently to increase your growth tremendously?

For nearly all seed stage companies, the answer is no.  You could certainly hire more people with $50M, but again, growth is not measured in terms of employees.  It’s measured in revenue results.  Could you turn $50M into $1B in revenue in the next 2 years?  At the seed stage, you don’t have enough information about the levers of your business to know how to do this.

At the seed stage, you might have some sense of 1 or maybe 2 customer acquisition channels that are working (at least for the time being).  You should use your data from these experiments to figure out the maximum amount of money that you’d feel confident throwing into these channels to yield great growth.  Great growth in venture investors’ eyes is often 30% MoM growth or higher depending on your baseline revenue and the space or business you’re in.

Originally posted by gabrielmismash

Similarly, you’ll want to repeat the same exercise for your lower bound number.  If you were to spend 2 months dedicated to fundraising, what is the smallest investment number that would be worthwhile raising such that you could immediately pour that money into growth for your business?

Consider growth, 18 months of runway, buffer, and milestones

Ok, so now you have a lower bound and an upper bound number for your raise.

Now, to pick your target raise (which is in between the lower and upper bounds), you should figure out the number in this range that will:

  • Give you 18 months of runway
  • Multiply that number by 2 for buffer, because things always take twice as long to achieve
  • And also gets you to the next milestone in that timeframe

If your next milestone is a series A round, you should remember that series A milestones tend to be in the $2M-$3M net revenue runrate range these days.  This is a step up from the $1M runrate milestone that people touted a few years back.

Originally posted by find-a-reaction-gif

If your next milestone is a seed-plus round, you should know that a lot of startups chasing after seed-plus rounds (i.e. what the old series A rounds used to be) tend to be doing $500k – $1M net revenue runrate range today.

Note: Marketplace and ecommerce companies, GMV is NOT REVENUE.  

I’m sure the milestone targets will only rise as more people become entrepreneurs and competition for limited investor dollars increases.  So, aim to err on the side of being more conservative around what milestones you need to hit.  Also, if you are in a crowded space (e.g. on-demand food), you will need to go above-and-beyond and surpass these rough milestone guidelines to demonstrate you can rise above the noise.

More on milestones in a subsequent post, but the bottom line is that you should make sure to pick a target raise number that hits these criteria. You do not want to fall short and be dismissed at the next round for not having accomplished enough in a timely manner because you raised too little money.

Form a concrete plan

So, now you need to prepare a concrete plan for all three raise numbers.  You should figure out:

  • Who you would hire?  (if you have specific names of people in mind who want to join you, this is even better)
  • How you would deploy the money for growth?  (the more specifics, the better)
  • What milestones would you hit? And on what timeframe?
  • What would the payback period of your customer acquisition be? (if you know)
Originally posted by veggietalesgifs

Four plans give you optionality

Now that you know what you’ll do in each of these four scenarios, you have a lot more optionality.  Although you will still go out and discuss your target raise, if an investor asks you why you aren’t raising more, you can always say, “Well, actually, I’ve prepared a plan around X, and if we have the interest, we’ll certainly opt to do more with a larger raise.”  By preparing details around how you’d use the larger raise, an investor may actually offer to invest at that larger amount.

Alternatively, let’s say an investor says, “I really don’t see how you’ll hit your target raise, and if you’ll fall short of your raise, I’ll lose my money.  I’m out.”  You’ll have a good response to this as well – you can describe what happens if you raise near $0 and also what you can achieve with your lower bound raise.

Alright, go get ‘em!

How to find email addresses to cold-email (for free)?

I’ve previously written about how to write cold-emails and why to cold-email people like Steve Ballmer.  But, how do you find Steve Ballmer’s contact information?

1) Use Rapportive

Cristina Cordova, who does Business Development at Stripe, writes about using Rapportive to guess a person’s email address.  Having tried this trick a number of times, it’s quite effective.


Ok, so let’s use this method with Steve Ballmer.  After a bit of quick guessing.,, etc, I hit gold.  But, let’s say this method didn’t work.

2) Message via LinkedIn 

Even using the free version of LinkedIn, you can often message people without being a first connection with them.  If you know who you want to email, check out his/her LinkedIn profile.  Find the groups he/she has joined.  Join those groups.  You can very often message people who are in the same group.

Even better is if a mutual contact feels comfortable introducing you over email or via LinkedIn.


Applying this technique to find Steve Ballmer’s email address, it appears he has 0 contacts on LinkedIn, so we have no known friends in common.  And, he does not belong to any groups.  So this method was a bust this time.

3) Search through online alumni networks

If you attended a school that has an online alumni directory, you can easily find contact information of alums.  Didn’t attend Harvard or Yale?  Beg and plead with a friend to help you look through his/her account.


Applying this technique to Steve Ballmer, who attended both Harvard and Stanford, I was able to find an email address and a phone number for him (not shown on screen).

But, let’s say we didn’t.  Moving on…

4) Search on Google

When in doubt, guess on Google.  These days, email addresses of high-level people, can be found on the web.  High-level people will often give presentations and post their slides on the internet.  It’s common to post contact information on the last slide.

But, beyond that, if a company has ever had a problem or an issue (all companies do), high level executives will often post their email address in forums asking unhappy or confused customers to email them.

You can use the same technique that Cristina uses with Rapportive to guess email addresses on Google.  Let’s guess Steve Ballmer’s email address.


You can see that he gave out his email address to the public at a Microsoft event on 2007.

So, 3 of 4 of these methods have successfully given us Steve Ballmer’s email address.  But, what if we still couldn’t figure it out?  You may argue that Steve Ballmer has a much greater web presence than perhaps an executive at a non-tech company.  This leads me to my last point.

If all else fails, guess

If we could not find Steve Ballmer’s address, I would try to look for other employees who work at Microsoft to see if there are patterns in the structure of their email addresses.  A lot of companies use a standard pattern such as or or etc.  I would then take my best guess and send an email to that address.

But, I would NOT email 7 different guesses like this:


This cold-email I received looked so desperate!  If you guess incorrectly and it bounces, you can try again with a different guess.  And, even if your email goes to the wrong person, it can still make its way to the right person.  I once guessed an email address incorrectly, and recipient replied to me and included the right person I wanted to reach on that email.

What methods do you use to find email addresses of people you want to reach?

Who is the best person to ask for an investor intro?

In my last post, I talked about how to write an email requesting an investor intro, but I didn’t talk about whom you should ask.

tl;dr – in order, the strongest referrals to investors come from:

  1. Portfolio founders who have raised recently from that investor (i.e. not enough bad stuff has happened at their company to make the investor disillusioned w/ the entrepreneur) OR past portfolio founders who have made the investor money
  2. Investors in your company
  3. Personal connections
  4. Other investors / founders / former colleagues of theirs (note: exercise caution here)
Originally posted by theweekmagazine

When I was raising money for LaunchBit and I wanted to reach investor John Doe, I used LinkedIn to see who knew him.  Very often, I was a 2nd degree connection to John Doe through a number of people including:

  • Investor Billy Bob – someone I’d just pitched; jury still out on whether he’d fund LaunchBit
  • Entrepreneur Sarah Smith – someone I’d known for years who is really nice
  • Entrepreneur Erlich Bachmann – a well-known entrepreneur whom I’d met once at a startup party
  • Investor Christine Tsai – an investor in LaunchBit whom I’d known for years and even worked together with at Google
  • Entrepreneur Jane Do – an entrepreneur whom I’d met a couple times before at various startup circles and had just raised money from John Doe

Who is best to ask for a referral?

Obviously, this situation wasn’t super ideal.  In an ideal world, my best friend would be a super successful entrepreneur who would know John Doe and could make an intro, but when you’re asking for potentially hundreds of investor intros – yes hundreds (more on that later), this is not going to be the case a lot of the time.

Originally posted by kaithebluh

The seemingly obvious person here is Christine Tsai because she’s known me for quite a while and also invested in LaunchBit.  I could ask her.  You certainly should leverage existing investors.  So, I’d ask Christine.

Investor Christine

But, Christine is also an investor and pings potential co-investors all the time about deals, so what is the weight of her recommendation?  In fact, to a certain extent, it’s her job to sell her companies to downstream investors…so will LaunchBit stand out to John Doe amidst all her other referrals?

I should probably also get a second intro in parallel in case Christine takes a long time to do this intro AND as a way to stand out once her email hits John’s inbox.  If he sees a couple of people mentioning my company, that would remind him about us.

Investor Billy Bob

I definitely shouldn’t pick Billy Bob.  Even though I’ve talked with him most recently, I don’t know yet what he thinks about LaunchBit.  I don’t know if he’d be an advocate, and I’m not sure if he’d recommend us.  In fact, if he and John Doe were to discuss the deal, they could both end up talking each other out of it, as often happens when investors get together.  Ideally, they should come to their own independent conclusions about my company.

Entrepreneur Sarah

I could ping Sarah, since she’s always been super helpful and nice to me.  But, I should find out first how she knows John.  Did she pitch John and did he say no to her company?  Just because John and Sarah are connected via LinkedIn, I’m not sure what John thinks of Sarah, so a recommendation from her may or may not be a positive signal.

Entrepreneur Erlich

I haven’t talked with Erlich in years and only met him once at a party.  Like Sarah, I don’t know what John thinks of Erlich and vice-versa.  Since Erlich is successful, chances are that John respects him professionally on some level.  However, I’ll need to pitch Erlich and sell Erlich first on LaunchBit before talking with John, and since it’s been years since I’ve spoken with him, that might be tough.  Erlich is probably not my first go-to person after Christine if I have a choice, but he could be a last resort.

Originally posted by glitterdwarf

Entrepreneur Jane

Finally, there’s Jane, who just raised money from John.  Based on that signal alone, I know that John thinks highly of Jane and is still really excited about her business.  Like Erlich, I would need to sell Jane first on LaunchBit so that she could sell John on meeting with me.  Note: you are always selling – even if someone isn’t an investor!  They can often help you sell your company to investors or other great contacts.  Even though Jane isn’t famous, she’s a much better person to get a referral from over Erlich because I already know that John not only respects Jane for her work, he’s so committed that he invested in her work.


In this situation, I would ping Christine and in parallel, also ping Jane to discuss with her briefly about whether she thinks it makes sense for me to connect with John about LaunchBit and whether she can help me with that introduction.

Getting investor intros is a game of hustle that often takes a long time.  Approach the best people who can help sell your company and whom an investor thinks highly of.  Approach multiple people.  And always be selling – even to people who are not investors.

How to ask for an investor intro?

The VC world is very relationship-based.  This is changing, but many VCs prefer to meet with founders who come highly recommended by close connections.  The problem is that well-connected people who can help with introductions are often inundated with requests.

So, even if you ask your well-networked friend who is a total supporter of you and your company for an intro, it could still take him/her a couple of weeks to get to your intro request.

Originally posted by theweekmagazine

Unfortunately, as a founder, you really don’t have time to wait a couple of weeks just to get an intro.  And sometimes, you need to get an intro from one well-connected friend to another well-connected friend who can do a strong intro for you.  And that could take weeks!

So what do you do?

You need to make it super easy – as easy as possible – for people to do intros for you.  Here’s how.

1. First briefly ask your friend or acquaintance if they wouldn’t mind pinging Investor John Doe with your request

Tell your friend that you’re raising a round, and you’re interested in talking with Investor John Doe to gauge his interest in your business.  Ask your friend if he/she wouldn’t mind pinging John Doe with your request to meet up briefly.  Tell your friend/ or acquaintance that if that’s cool, you’ll send a separate email with the request.

Originally posted by mynamestartswithaletter

2. Write an email that makes it super easy to forward to John Doe

THIS IS SUPER CRITICAL.  If your referrer needs to think, write, or spend any more than 5 seconds on your intro, then it will not get done for weeks.

Write the email from you.  DO NOT TRY TO WRITE THE EMAIL FROM THE PERSPECTIVE OF YOUR REFERRER.  It will not be in his/her voice, and he/she will end up spending a ton of time editing it.

Here’s an example of a very good email requesting an investor-intro from one our batch founders (with details of the business changed for confidentiality reasons):

Hi Elizabeth,

Thank you in advance for sending this to Martha at BigCrazy VC. We’re raising our seed round and I’d like to get her thoughts on HippoCo. Here’s a quick background:

The $180 billion hippo education market is antiquated and ripe for disruption:

1. Highly fragmented – over 80% of hippo education is distributed through mom and pop stores and only 20% is branded, elite hippo education

2. Structurally inefficient – archaic supply chains require significant working capital for inventory and long lead times to launch new classes / educational content for hippos

3. Un-segmented – Product offerings are split mainly into expensive, elite hippo education or cheap made-up content for hippos with nothing in-between

HippoCo has addressed these issues and created a direct-to-consumer educational brand that offers affordable, useful educational content for the millennial hippo.  We co-design and market new educational products in collaboration with top teachers at traditional hippo schools.

The results are validating our model and popularity with hippos:

  • Annualized revenue: $900K USD, growing +70% QoQ
  • Margins: 50% – 60%
  • Strong unit economics: CAC: $25, 25% repeat purchase rate in the past 6 months

Founders are third generation hippo teachers and technologists from the Bay Area.

My Best,


Originally posted by tinsoftware

When I forward an email, I simply add my note to the top to give my thoughts and perspective on the founder and/or company.  The email above covers everything that needs to be said, including context (why the founder wants to talk with Martha) as well as key information about the business (KPIs and a description).

These are the biggest mistakes entrepreneurs make when asking for intros, which delays them:

  • Not providing any context (why the hell do you want to meet?)
  • Sending a blurb that doesn’t say anything (vacuous)
  • Neglecting to include a couple of KPIs
  • Asking for 9 intros but only sending one email that can be forwarded (you should create a SEPARATE email for each intro you want)

If you do any of these bullets, it means your referrer has to THINK about what additional information to add OR do a lot of copying and pasting.

These may seem like silly deal breakers, but if each task takes 5 minutes, and your referrer is inundated with even just 10 requests like this a day, it will end up taking him/her an hour to fulfill this.  This means that your intro requests will end up being neglected for a couple of weeks.

3. Follow up. 

If you don’t hear back from your friend/acquaintance within 5 days, follow up.  It may be that he/she forgot to reach out to the investor you want to approach. Or, it may be that the investor never got back to your referrer.

People’s inboxes get buried quickly, so don’t feel bad about following up!

Originally posted by theyellowtracksuit

4. Optional: Let your referrer know how things went

Lastly, assuming you get connected, let your referrer know how things went.  It goes without saying that you might like to thank your referrer at some point during this process.

If you end up sealing a deal with the investor, make sure to mention that to your referrer.