A true economist, the joke goes, would never bother to pick up a $10 bill on the sidewalk because in an efficient market, instant, riskless profit is impossible. Of course, markets are far from efficient, and an entrepreneur would not only scoop up the sawbuck but also scheme about where to find more. Startup companies are ventures whose entire existence is based on exploiting a gap in the market-an inefficiency that existing companies have failed to identify and pursue for profit. Potential investors attempt to assess the size (or even existence) of a startup's designated gap and whether the company is truly poised to take advantage of it.

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