---
title: "Have Investors Had Success in Your Market Before?"
section: "Market"
sectionId: "market"
date: "2026-05"
---

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.