Investors aren’t just fixated on the size of your market; they care about their returns. Due to the power law distribution of startup outcomes — where many investments fail, some perform below expectations, and only a few achieve their projected size — VCs aim for each investment to potentially return their entire fund. This means your company’s exit value is crucial. You need to demonstrate that your company could grow big enough to return the whole fund.

Typically, VCs look for portfolio companies that can exit at a valuation of at least $1 billion. Assuming you’ve captured 10-20% of the market by that point, your company would need to generate $100 million to $200 million in revenue. The advice to present a market size of over $1 billion stems from this focus on achieving billion-dollar exits.

If your market is over $1 billion, that’s excellent, but make sure it’s not overly large, as an excessively broad market can be just as problematic. For more details, see this guide.

If your market is below $1 billion, you should work on expanding it. Strategies for this can be found there.

If you’re unsure how to calculate your market size, refer to this guide.