Great Teams Can't Save Bad Markets

The conventional wisdom in venture today seems to be that when evaluating an investment, you should ignore TAM and focus entirely on the quality of the team.

The thinking goes that S-Tier founders will figure it out. They’ll create new markets, expand existing ones, or pivot into the right ones. Market sizing is seen as a trap, because you're just as likely to get it wrong in either direction.

In theory, this makes sense.

In practice, it just hasn’t been my experience.

I've seen exceptional founders fail because they were operating in terrible markets. I've also seen mediocre teams succeed because they were in the right markets with product market fit.

Almost every time that I've bet on a strong team that had a blurry view of the market they were going after, I’ve lost money.

I will admit that I’ve passed on companies where I thought the market was too small or the need wasn't strong enough, only to be proven wrong. While I regret those decisions, my takeaway wasn't that I should stop assessing markets at the early stage.

My takeaway was that I f*cked up and need to get better at it.

There's one exception here: truly new categories, which is rare in B2B. You’ll probably get the sizing wrong, but even then, for an investment to provide meaningful returns, the eventual market must be huge.

Of course the quality of the founding team matters. But that alone isn't enough to win. Stories like Slack, Windsurf, Twitter, Clay, where the first thing didn’t work and they pivot into greatness are the exceptions, not the rule.

Both team and market matter, but as I get on in my venture career, I’m putting more weight on market needs and pull up front than I used to.

I heard opposing views on this from Harry Stebbings and Elad Gil on 20VC and Shane Parrish podcasts respectively. I agree with aspects of both but tend to be more on the Elad side of the house these days, focusing on market need first.