Obsession with TAM: What's holding Indian VCs back

Groww is going public at a valuation of $9B. The company started in 2017 as a mutual fund platform, and ventured into broking only by 2020. But why?

After all, Zerodha launched in 2010. And by 2020, Zerodha was already a ₹1,093Cr revenue company with a PAT of ~₹440Cr. Then how and why did the first VC funded competitor of Zerodha come only 10 years after its founding? (7 years, if you count Upstox).

And it's not like Zerodha's journey was in anyway unclear. By FY16, Zerodha was already a ₹100Cr company by revenues. It was growing like crazy YoY, with ~50% net margins getting stashed in the bank without fail. Then how is that there came 'no competition' for the company - neither from established incumbents like Angel Broking, nor by VC funded upstarts? Not one competitor who could challenge it at the right time? That's extraordinary, right?

How is that the entire industry prove to be totally blind to what turned out to be the largest opportunity that Indian startup ecosystem had to offer? How does something like that even happen?

The answer lies in something called "TAM". The obsession towards it, and the blindness which it often leads to.

In a 2015 interview with Yourstory, Mr. Nithin Kamath had said, "Even though depositories claim there are close to 20 Million demat accounts, the active may not be more than 1-2 Mil". In a 2018 book called 'No Shortcuts', he noted, "India's active day trading population was around 5 Lakh people only."

Just 5 Lakh daily traders..

That was it. The market was perhaps "too small". It probably didn't fit in the usual "theses" of VCs which are strongly centred around TAM, SAM, SOM, OM NAMAH SHIVAAY. The opportunity was big enough for Zerodha to keep growing exponentially with heavy net margins. But not big enough for VCs in pursuit of the "Alpha".

And so.. Zerodha went on. It found a niche, grew (in a surprisingly uncontested way), with competitors only turning up by the time it was HUGE. And then the market grew as well. (India had about 2 Cr demat accounts in 2010. The number stands at 20 Cr in 2025).

This once again proves Mr. Peter Thiel (and Sanjeev Bikhchandani Sir, and Nithin Kamath Sir) right. In the sea of VCs obsessed with TAM, these three have always openly shunned that way of evaluating opportunities.

“When you are starting a new business you don't want to go after giant markets. You want to go after small markets and take over those markets quickly", said Mr. Thiel.

"Top-down way of evaluating companies works well for consultants, maybe. But early analysis of Naukri said that the entire opportunity for us would be 1/10th of the total classified newspaper ads business at the time. Hence, "too small". Same was the case with Zomato, and so on", said Mr. Bikhchandani.

Bottom line: Forget about TAM. A ₹10 Cr company can evolve into a ₹50 Cr company, which can evolve into a ₹500 Cr company. But if it's not funded because the "TAM" didn't sound sexy at the early stages, it'll just not get built.

TAM: The obsession towards it, and the blindness which it often leads to.

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