Importance of Market Size in Startup Evaluation | 1min snip from Lenny's Podcast: Product | Growth

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Lessons from 1,000+ YC startups: Resilience, tar pit ideas, pivoting, more | Dalton Caldwell (Y Combinator, Managing Director)

Lenny's Podcast: Product | Growth | Career

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Importance of Market Size in Startup Evaluation

For investors, the importance of market size in evaluating startups varies based on the investment stage. At later stages with high valuations, market size becomes crucial while at earlier stages, it is less significant. Some successful startups like Uber, Airbnb, and Razorpay started with tiny Total Addressable Markets (TAM) but grew significantly over time. Thus, while a large market is important in the long term, it may not be a critical factor in the initial evaluation of a startup.

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Dalton Caldwell is Managing Director and Group Partner at Y Combinator. Prior to YC, he was the co-founder and CEO of imeem (acquired by MySpace in 2009) and the co-founder and CEO of App.net. During his time at YC, he’s advised more than 35 YC unicorns, including DoorDash, Amplitude, Webflow, and Retool, and has worked across 21 different YC batches. He’s also racked up more than 6,500 office hours with founders. In our conversation, we discuss:

• Why founders need to adopt the mindset “Just don’t die”

• The most common reason startups fail

• When to pivot, and characteristics of a good pivot

• The concept of “tar pit ideas” and examples of bad startup ideas

• Why investors say no to startups

• The importance of market size in investment decisions

• The pitfalls of founders over-delegating

• Effective ways to talk to customers

• 20 ideas Dalton is looking to fund

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