The total addressable market is more important to later-stage VCs and Private Equity firms writing big checks to high-value companies. In those scenarios, there might be legitimate situations where a business' growth is constrained because they start to run out of new customers. I recently witnessed this problem when chatting with the CEO of a well-known private SaaS business that dominates its niche. He said, "Guess how big we are?" I said, "Well, you have been around for a while and raised a lot of venture capital, so… maybe $100 million.” He said, “Closer to $50 million... we have run out of companies to sell to." This is a big problem for what looks to be a very successful SaaS business.
So while the TAM estimate might not be the most important factor when raising capital in the startup's early stages, it is something you always need to be thinking about. To evaluate revenue opportunities, VCs are trying to look six years down the road, not six months.