A crowded market is actually a good sign because it means both that there's demand and that none of the existing solutions is good enough. A startup can't hope to enter a market that's obviously big and yet in which they have no competitors.
So any startup that succeeds is either going to be entering a market with existing competitors, but armed with some secret weapon that will get them all the users (like Google), or entering a market that looks small but which will turn out to be big (like Microsoft).
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One of the main things that VCs are looking for is a huge target market, usually at least $1 billion, that you can address through your startup. The reason for this is simple: VCs invest in multiple startups with the understanding that some of them will fail, some of them will not grow very much,...
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