The TAM myth: When investors confuse company failure with market size

I can confidently say that TAM is the second most abused word in an investor's vocabulary, after PMF.

Total addressable market. It sounds like maths. Most of the time it is just a mood. And often it is not even your own mood. It is the mood of the investors around you, set by how their portfolio companies are doing. Here is how it plays out.

A few funded names in a category stumble, and a verdict forms overnight. "See, we told you. Consumer does not grow. The TAM is capped." Take beauty and personal care.

Sugar Cosmetics raised 50 million dollars in 2022, led by L Catterton. Revenue grew to 420 crore in FY23, slowed to 515 crore in FY24, then contracted to roughly 411 crore in FY25, its first fall since inception. The EBITDA loss widened to around 108 crore.

Wow Skin Science had raised a sizable round too. Revenue slid from 340 crore in FY22 to 258 in FY23 to 233 in FY24. Two straight years of decline. Even Mamaearth's parent, biggest at 1,920 crore of revenue and 147 crore of profit in FY24, saw growth cool below 10%. Slow for a consumer internet brand.

Cue the verdict. TAM exhausted. But that was a heuristic dressed up as a law. If the TAM were truly capped, it would cap everyone. That is what a ceiling does. So look at the same shelf, the same customer.

Minimalist grew 89% to 347 crore in FY24, then 48% to 515 crore in FY25, and sold to HUL at a 2,955 crore valuation. Pilgrim, where I was lucky to invest in the first round, and Bare Anatomy are both doing genuinely well.

Same TAM. Opposite outcomes.

Look closer, and the real reasons are company-specific.Sugar had built 45,000+ retail touchpoints. When revenue fell, those fixed costs did not. A warehouse fire then wiped out a chunk of its inventory. Wow leaned on heavy discounting with thin differentiation, slashed ad spend 46%, and the topline shrank with it.

Mamaearth simply hit a larger base. None of it is a TAM problem. A real TAM ceiling shows up as flat growth across the board. What we saw was a few names falling, one maturing, and challengers compounding. That is not a market running out of room. It is a market sorting winners from stragglers.

TAM is a useful discipline. It is a lethal excuse. When a couple of funded leaders de-grow, it tells you little about the category, and a great deal about those companies, and the mood of those who backed them.