How Biotech Founders Build Defensible Market Size Slides Investors Won't Question

The Investor's View: What VCs Actually Look For in Biotech Financial Projections

For a biotech founder, the market size slide in a pitch deck often feels like a necessary evil. Your focus is on the science, the mechanism of action, the potential to fundamentally change patient outcomes. Yet, you are asked to translate this complex, elegant science into a single, massive dollar figure. The pressure to present a multi-billion dollar Total Addressable Market (TAM) is immense, but a number without a defensible story can undermine your credibility faster than a failed experiment.

The goal is not just to find a number, but to build a narrative that demonstrates a deep understanding of the market you intend to enter. This is how to calculate market size for a biotech startup in a way that builds investor confidence, rather than inviting scrutiny. A well-crafted market analysis signals that you are not just a brilliant scientist, but also a credible business builder.

Investors see hundreds of biotech startup pitch decks, each claiming a vast market. They have learned to look past the headline TAM number and focus on the logic behind it. The methodology is the message. A well-reasoned, bottom-up analysis shows you understand the clinical and commercial realities of launching a new therapeutic. It proves you have thought deeply about the specific patient journey, reimbursement landscape, and go-to-market strategy.

What investors really want to understand is the market you can realistically capture. VCs typically focus on the Serviceable Obtainable Market (SOM) for the first 3-5 years post-launch. This is the tangible, near-term revenue potential that will drive the returns on their investment. While a large TAM provides context, it’s the believability of your SOM that determines whether they lean in or move on. They are testing your assumptions and looking for evidence that you grasp the nuances of patient segmentation, physician behavior, and competitive dynamics. A defensible market analysis signals operational rigor, a crucial trait in any founding team.

The Core Challenge: How to Calculate Market Size for a Biotech Startup

Translating a scientific breakthrough into a commercial forecast is the central challenge. The key is patient stratification. Your therapy will not treat every patient with a general disease; it will treat a specific subset defined by biomarkers, disease stage, line of therapy, and other clinical criteria. This is where many biotech financial projections go wrong, by starting with the total prevalence of a disease and applying a hopeful market share percentage.

The reality for most pre-seed to Series B startups is more pragmatic: your value is tied to a precise, well-defined patient population. An investor needs to see the direct line from your drug’s mechanism of action to a specific group of patients. For example, a therapy for non-small cell lung cancer (NSCLC) is not for all 238,000 new patients a year in the US. It is for those at a certain stage, with a specific genetic mutation, who may have failed a prior therapy. Each of these layers reduces the total number but dramatically increases the credibility of your market size calculation.

This detailed TAM SAM SOM biotech analysis is what separates a speculative idea from a fundable business plan. It demonstrates that you understand not just the science, but the complex path from the lab to the patient. This precision is the foundation of all defendable market assumptions.

The Gold Standard: Building a Bottom-Up Market Analysis

Bottom-up analysis is the gold standard for creating a credible market size slide. It involves starting with the most specific patient population and building upwards by layering in pricing and adoption assumptions. This method demonstrates a granular understanding of the market and creates a forecast that can be defended during due diligence. It directly addresses the difficulty of translating clinical milestones into realistic TAM, SAM, and SOM figures.

Consider a synthetic example: a startup developing a novel inhibitor for non-small cell lung cancer (NSCLC) targeting the KRAS G12C mutation. Here is a step-by-step guide.

1. Start with Total Incidence. Begin with the total number of new cases for the indication in your target geography. For our example, we use the total new cases of NSCLC in the USA. (Data source for Total NSCLC incidence: American Cancer Society, 2023).
2. Stratify by Disease Stage. Your therapy is likely intended for a specific stage of the disease, such as metastatic or locally advanced. You need to find what percentage of the total patient pool is diagnosed at this stage. (Data source for percentage of patients diagnosed at relevant stage: SEER database).
3. Apply Biomarker Segmentation. Next, apply the prevalence of the specific genetic mutation your drug targets. What percentage of these stage-specific NSCLC patients have KRAS mutations? (Data source for percentage of patients with KRAS mutations: Peer-reviewed oncology journals).
4. Refine with Sub-mutation Data. Even within the KRAS-mutant population, your drug may only target a sub-mutation. You must apply this next layer of stratification. What percentage of the KRAS-mutant patients have the specific G12C sub-mutation? (Data source for percentage of patients with G12C sub-mutation: Foundational Medicine data). This highly specific number is your initial addressable patient pool.
5. Define Your TAM, SAM, and SOM. From this specific pool, you can build out the classic market sizing framework.
   • Total Addressable Market (TAM): Your refined patient pool (from Step 4) multiplied by your estimated annual price. This represents the total annual revenue opportunity if you were the only product and captured 100% of the market.
   • Serviceable Addressable Market (SAM): Not every eligible patient will receive your drug due to factors like diagnosis rates or access to care. A realistic treatment rate assumption is between 70-80% of the eligible patient pool. Your SAM is this smaller patient number multiplied by price.
   • Serviceable Obtainable Market (SOM): Your SOM is the fraction of SAM you can realistically capture, considering competition and clinical realities. Peak market share projections over 30-40% in a competitive market will be questioned by investors. Your SOM is your projected market share of SAM.

By multiplying this final patient number by your projected annual price, you arrive at a defensible SOM, built on a clear, citable, and logical foundation. This process moves you from a broad claim to a specific, investable thesis.

Using Top-Down TAM as a Sanity Check

If bottom-up is the gold standard, what is the role of the big TAM number? A top-down TAM, often sourced from market research reports, serves as a valuable sanity check and contextual frame. It answers the question: “Is the overall market large enough to support a venture-scale outcome?” While it lacks the credibility for operational forecasting, it shows investors that the broader field you are playing in is significant.

Think of it as setting the ceiling. Your bottom-up analysis builds the floor and walls of your business case, showing the realistic near-term opportunity. The top-down TAM shows the total size of the room. For this high-level context, you can reference paid market research reports. Credible data sources for top-down context include data from Clarivate, GlobalData, and IQVIA.

When presenting, you can frame it as, “The total market for all NSCLC therapies is estimated at $X billion, according to GlobalData. Our initial focus is on the KRAS G12C segment, which we calculate from the bottom-up to be a $Y billion opportunity.” This approach showcases both strategic awareness and operational detail, demonstrating that you understand both the big picture and the specific niche you will dominate first.

Sourcing Data That Survives Due Diligence

Your biotech market analysis is only as strong as its sources. Backing up bottom-up SOM assumptions with evidence strong enough to survive deep investor due-diligence is critical. The hierarchy of data credibility is paramount. VCs will check your references, so using high-quality, verifiable sources is non-negotiable.

Clinical and Epidemiological Data

For clinical and epidemiological data, prioritize primary sources and high-impact publications. These provide the granular data needed for patient stratification. Credible data sources for incidence, prevalence, and segmentation include peer-reviewed journals found on PubMed, such as The Lancet and the New England Journal of Medicine (NEJM).

Governmental and Non-Profit Databases

For broader disease statistics and population data, governmental and major non-profit databases are the most trusted sources. These organizations provide robust, publicly available datasets that are considered standard inputs for any serious biotech financial projections. Credible sources include the CDC, NIH, and the SEER database in the US, and organizations like the American Cancer Society. For UK cost-effectiveness guidance, the National Institute for Health and Care Excellence (NICE) is a key resource.

The Importance of Triangulation

A scenario we repeatedly see is founders referencing a single, often obscure, market research report for their entire analysis. A much stronger approach is to triangulate data from multiple, high-quality sources. If different sources provide conflicting data, acknowledge it and explain the rationale for the figure you chose. On your pitch deck assumptions slide, clearly list each data point and its corresponding source with a citation. This transparency not only builds trust but also equips you to answer detailed questions with confidence. Show your work; it demonstrates rigor and a commitment to getting the facts right.

Key Principles for a Defensible Market Size Slide

Building a market size slide that withstands scrutiny is less about finding the biggest possible number and more about building the most logical case. For founders without a dedicated finance team, the focus should be on creating a clear, defensible model in a spreadsheet that you can explain and stand behind. The following principles are essential for crafting defendable market assumptions.

• Lead with Bottom-Up: Anchor your entire market size story in a detailed, bottom-up calculation of your initial target patient population. This is your SAM and SOM, and it is what investors will underwrite.
• Show Your Work: Create a dedicated slide in your appendix that clearly lists every assumption, data point, and source used in your calculation. Transparency is your greatest asset during due diligence.
• Use Credible, Citable Sources: Stick to top-tier academic journals, government health databases, and major disease-focused organizations. As stated, sources like the American Cancer Society, 2023, or the SEER database are industry standards.
• Be Realistic About Penetration: Your SOM must account for competition and clinical realities. Acknowledge that you will not capture 100% of the serviceable market. Peak market share projections over 30-40% in a competitive market will be questioned, and a realistic treatment rate is often between 70-80%.
• Use Top-Down for Context Only: Frame the multi-billion dollar TAM as the big picture, but immediately pivot to the specific, bottom-up opportunity that your company will capture in the first 3-5 years. This shows both vision and pragmatism.

Ultimately, a strong market size analysis tells investors more about you as a founder than it does about the market itself. It shows you are rigorous, data-driven, and have a clear-eyed view of what it takes to bring a new therapy to the patients who need it. Continue with related templates at the Pitch Deck Financials hub.

Frequently Asked Questions

Q: What should I do if there is no perfect epidemiological data for my specific patient segment?

A: When precise data is unavailable, use the closest credible proxy and clearly state your assumptions. For example, you might use data from a related disease or extrapolate from a smaller patient cohort study. The key is to acknowledge the limitation and justify your logic. This transparency is more valuable to investors than pretending perfect data exists.

Q: How can I project the price for my therapy when it is still in pre-clinical development?

A: For early-stage biotech financial projections, pricing is based on analogue analysis. Research the annual cost of existing therapies for the same indication, particularly those with similar mechanisms or efficacy profiles. Consider the value proposition of your drug; a curative therapy can command a higher price than one offering incremental benefits. Reference these analogues in your assumptions.

Q: Is a multi-billion dollar TAM always necessary to attract venture capital?

A: While a large TAM is attractive, the credibility of your SOM is more important. A smaller, well-defined market of several hundred million dollars that you can realistically dominate is often more compelling than a vague claim on a massive market. Investors look for venture-scale returns, and a dominant position in a profitable niche can provide that.

Q: Should I include both US and EU markets in my initial biotech market analysis?

A: For an early-stage biotech startup pitch deck, it is often best to focus your primary analysis on a single key market, typically the US due to its pricing structure. You can mention the EU or other regions as a secondary, expansion opportunity to show a larger long-term vision, but build your core SOM from a single, well-researched geography.