Have Investors Had Success in Your Market Before?

Also called the "scar tissue issue" — investors who have been burned in a market before will be harder to convince, regardless of how good your startup is.

Is your market venture-scale?

The core question investors ask: can dozens (or hundreds) of venture-scale businesses be built in your market?

Being in enterprise SaaS is much more investable than running laundromats or restaurants. Why? The path to a $1B company is simply easier in software.

Venture scale means: can your startup reach $100M in revenue or a $1B valuation in under 10 years?

The Calm example

When Calm first launched, investors were skeptical — the market seemed limited to people who were already into meditating. That would not have been a venture-scale business.

Once Calm added Sleep Stories, mental recovery content for athletes, and other products, the total addressable market expanded dramatically and investors came around.

Elad Gil's "2% and $1 Billion Rule"

In a February 2017 blog post, investor Elad Gil described a useful heuristic for assessing market quality:

"In general, you want to be in markets where multiple companies could afford to buy you for $1 billion, or where 2% of their market cap is at least in the hundreds of millions of dollars."

Example — tools for creator monetisation:

Potential acquirer	Market cap (approx.)
Google	~$2T
Facebook	~$950B
Snapchat	~$88B
Twitter	~$43B

Example — enterprise software:

Company	Market cap (approx.)
Microsoft	~$2.5T
Adobe	~$315B
Salesforce	~$300B

Large market caps help in three ways according to Elad:

1. They reflect market opportunity — based on total revenue, growth rate, and margin
2. Incumbents are potential acquirers — they create exit opportunities for your investors
3. Cash-rich companies become strategic investors — large incumbents often invest in startups at later stages

Ask yourself: what are the market caps of the biggest companies in my space? If the answer is "small or none," that's a signal worth examining.