Market & Positioning Validation: Separating Thesis from Reality
The Assumption Risk
Every investment memo starts with assumptions: "Clear category leader. TAM of $5B. No real competition. Easy path to 40% growth." But management teams are optimistic, pitch decks are polished, and assumptions aren't facts. Independent market validation reveals what's actually true before you commit capital.
What Is Market & Positioning Validation?
Market and positioning validation is the independent assessment of a target company's market opportunity, competitive position, and differentiation claims. It answers the critical questions: Is the market as big as they say? Are they really winning? Can they defend their position? Will customers pay premium prices?
Through primary research with customers, prospects, and industry experts combined with secondary market analysis, we separate marketing claims from market reality.
How Market Validation Works
TAM Reality Check
Independent sizing of total addressable market, serviceable market, and realistic penetration based on segment dynamics and buying behavior-not vendor projections.
Competitive Positioning
Voice-of-customer research reveals how buyers actually perceive the target versus competitors, what drives purchase decisions, and whether differentiation claims hold up under scrutiny.
Growth Trajectory Validation
Assessment of market growth drivers, buyer adoption curves, and competitive threats to validate whether projected growth rates are achievable or aspirational.
Pricing Power Analysis
Testing whether the target can maintain or increase pricing based on value perception, competitive pressure, and customer willingness to pay.
What Gets Validated
Market Opportunity
- •Independent TAM/SAM sizing with bottoms-up validation
- •Market growth rate and adoption curve analysis
- •Segment maturity and buyer readiness assessment
- •Regulatory and technology trend impact
Competitive Position
- •Win/loss patterns versus named competitors
- •Brand awareness and preference testing
- •Feature and value proposition differentiation
- •Barriers to entry and defensibility analysis
The Primary Research Advantage
While desk research provides context, the real insights come from primary research-direct conversations with customers, lost prospects, industry experts, and competitors. This reveals:
Customer Perception
What customers actually value versus what the target thinks they value
Churn Risk Signals
Early warnings of satisfaction issues that don't show up in NPS scores
Competitive Threats
Emerging players and substitutes not on the radar
Real Impact
Market validation changes deal outcomes. In one recent software diligence, management claimed to be the "clear category leader" with "minimal competition." Primary research revealed:
- →Customers viewed them as one of four credible options, not the leader
- →Win rate against top competitor was under 40%, not 70% as claimed
- →Three customers mentioned considering switching due to product gaps
- →TAM was 60% smaller than modeled due to segment overlap issues
The buyer renegotiated valuation down 18% and structured additional earnouts tied to retention and market share gains. Without independent validation, they would have overpaid for false assumptions.
The Diligence Timeline
Market validation typically takes 3-4 weeks within a standard due diligence process:
When Validation Confirms the Thesis
Not every market validation uncovers red flags. When research confirms the investment thesis-strong brand preference, defensible differentiation, credible TAM-it builds conviction for the deal and validates the growth plan. It also surfaces early opportunities for value creation that inform the 100-day plan.
The Bottom Line
Management teams present optimistic narratives. Independent market and positioning validation reveals objective reality. The difference between those two views determines whether you overpay, pass on a gem, or enter the deal with eyes wide open and a realistic value creation roadmap.
PE firms that skip this step don't just take thesis risk-they take blind risk. The best investors validate before they invest.
Ready to Validate Your Investment Thesis?
SBI's GTM due diligence practice has assessed over $12B in transaction value across 200+ deals. Our independent market validation reveals the truth that shapes investment decisions and value creation plans.
Speak with Our PE Team