1Mby1M Virtual Accelerator Investor Forum: With Clint Chao of Moment Ventures (Part 6)

Sramana Mitra: In our work, we place a lot of emphasis on TAM and on really trying to get to precise bottom-up TAM analysis. In doing so, one thing that I see constantly is ignoring the segmentation aspect. You can say that this applies to everybody, but that’s not true.

Often, solutions are perfect for a subset of the population that you think it applies to. That’s where it finds high velocity adoption, but if you go outside of that segment, it doesn’t have high velocity expansion. If that is the case, you better be aware of that. Better be aware of what your real TAM is versus overestimating the TAM.

Clint Chao: That aspect should be most clear in the traditional IT market. A lot of these startups initially create a white space opportunity not currently served by the general market. They have the vision to expand their presence by amassing more IP and developing new technologies to help spread and grow their TAM. That doesn’t always happen.

In crowded markets where dozens and dozens of companies are seed-funded and everybody is targeting some niche space, you can’t grow more than 1x of the TAM. If there are 10 companies going after that, something has to give. Having said that, in some of the markets that we look at, what’s interesting is some of these companies are really greenfield opportunities. We have a company in the education space called Swing Education that is helping schools find substitute teacher opportunities.

Sramana Mitra: If you have deep domain knowledge of some sort that drives that kind of deep workflow automation, those are very interesting niche opportunities. I love these kinds of businesses.

Clint Chao: If they’re right, we think there’s an opportunity for them to significantly grow their TAM. Now you’ve got a technology platform that helps the operations of that industry. There’re lots of places where these kinds of companies can go to extend their reach. In some cases, markets are really crowded.In some markets, it’s completely green.

In both cases, we advise them to be cautious and be conservative with their cash. Only be aggressive in their spend once you know and have evidence of good fit. Raise money accordingly. To your point, there are cases where as they’re going through that, there may be an opportunity to exit before having to raise large amounts of money, which creates a different hurdle for them to overcome.

Many of these entrepreneurs are in their early to mid 20’s. The first one they found may not end up becoming the billion dollar outcome, but they learn a ton. We want to find those entrepreneurs that have that desire and hunger to do that.

In the very first company that we invested in Moment Ventures, the CEO built a nice company and ended up selling it to Akamai about a year and a half ago. He started a new company and became our first investment out of our second fund. We love repeat entrepreneurs.

Sramana Mitra: The market is full of repeat entrepreneurs. We are in a mature cycle of technology so this has been going on now for many years. Terrific. That was an excellent conversation. Thank you for sharing your thoughts.

This segment is part 6 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Clint Chao of Moment Ventures
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