TAM, SAM, SOM: What They Actually Mean (And Why Most Founders Get It Wrong)
TLDR:
TAM is your theoretical ceiling,
SAM is what you can actually serve today,
SOM is what you can realistically capture in 3-5 years.
VCs care most about SAM, and it should be at least $1B for seed-stage investment.
Stop citing analyst reports and start building your numbers from the bottom up.
Last Updated: February 2026
Nothing makes VCs roll their eyes faster than a market size slide that says "The global XYZ market will be $500 billion by 2027 (Grand View Research)." I saw this slide structure hundreds and hundreds of times during my seven years as a VC Principal, and it told me exactly one thing: this founder doesn't understand market sizing.
The problem isn't that founders include market size. They should. The problem is they approach it backwards. They find a big number, paste it on a slide, and hope it's impressive. What they don't realize is that VCs have a very specific way of evaluating market size, and generic analyst reports actually hurt your credibility.
What TAM, SAM, and SOM Actually Mean
Most founders use these terms incorrectly, so let's start with definitions.
TAM (Total Addressable Market) is the total revenue opportunity if you achieved 100% market share in your entire category. This is the theoretical maximum, the total spending on solutions to the problem you're solving across all segments and geographies. TAM is useful for understanding the overall opportunity size, but no company captures 100% of TAM. It's a ceiling, not a target.
SAM (Serviceable Addressable Market) is the portion of TAM that your product can actually serve today, given your current product capabilities, geographic presence, and go-to-market strategy. If your TAM is all project management software globally, but your product only works for software development teams in English-speaking countries, your SAM is much smaller. This is the number VCs care about most.
SOM (Serviceable Obtainable Market) is the portion of SAM you can realistically capture in the near term, usually 3-5 years. This accounts for competition, go-to-market limitations, and market dynamics. For most pre-seed and seed stage startups, SOM is typically 1-10% of SAM depending on competitive dynamics.
Why VCs Hate Top-Down Market Sizing
Top-down market sizing starts with a big number from an analyst report and works down. Here's why it destroys credibility.
Anyone can find big numbers. When you cite "The global HR software market is $25 billion (Gartner)," you're not demonstrating any insight. Anyone with Google can find that number. It doesn't tell me you understand your specific opportunity, just that you can search for impressive-sounding statistics.
The numbers are usually wrong for you. Analyst reports define markets differently than you might. That "$25B HR software market" might include enterprise systems you'll never compete with, geographies you can't serve, and categories irrelevant to your product. Citing it suggests you don't understand your own market boundaries.
It shows a lack of customer understanding. Top-down numbers reveal that you haven't done the work of understanding your actual customers and their willingness to pay. You're substituting research for insight, and VCs notice this immediately.
I'll be honest about what went through my mind when I saw top-down market sizing: "This founder either doesn't understand their market deeply, or they're hoping I won't notice the mismatch between this huge number and their narrow product." Neither interpretation leads to funding.
What Market Size Do VCs Actually Look For?
VCs think about market size in terms of potential returns. For a fund to work, each investment needs the potential to return the fund. For a $100M fund, that typically means companies need $1B+ potential outcomes.
Work backwards: if you capture 5% of a $500M market, you're a $25M revenue business. At typical SaaS multiples, that's a $200M company. Fundable by some investors, but probably not the tier-one funds. At the same market share in a $5B market, you're a $250M revenue business, potentially worth $2B+. That's venture-scale.
Here's a general guideline for pre-seed and seed founders: your SAM should be at least $1B. Some specialized funds or pre-seed investors will accept smaller markets, but most generalist seed funds won't engage with markets under $1B SAM. This doesn't mean you need to address a $1B market on day one, but you need a credible path to that market over 5-7 years.
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KEY TAKEAWAYS
TAM is your theoretical ceiling (100% market share), SAM is what you can serve today, SOM is what you can realistically capture in 3-5 years.
VCs care most about SAM, and for most seed-stage investments it should be at least $1B.
Top-down market sizing (citing analyst reports) destroys credibility because it shows you haven't done the real work of understanding your customers.
You don't need to address a $1B market on day one, but you need a credible path to get there over 5-7 years.
