The High Tide Rule

–> A rising tide raises all boats

A crucial element for venture capitalists in evaluating a potential investment opportunity involves determining total addressable market and the compound annual growth rate for the company in consideration.

In this analogy the tide = the market or growth and the boats = all the companies in the given market. Most investors have market size constraints (the business must address a market size of $xxx before considering an investment). But even more important, if the market (tide) is increasing at a rapid rate, all the boats (you and your competitors) benefit. Investors like big, growing markets.

There are many great ideas that go after smaller markets, and I’m not saying these are bad businesses. If you are looking for VC funding, however, make sure the market you are targeting is big and rising.