Now that every VC firm is blogging, even those who don’t hang out regularly on Sand Hill can get a pretty good idea of the mentality at top tier firms and the VC model. Lightspeed posted today on the four key items to emphasize when pitching your company. Smack dab first was:

1. Demonstrate you are addressing a Billion dollar plus market. This is the most important thing. If you can’t convince the VC you’re solving a problem in a huge market, you’re dead in the water. Big markets make big companies. Big markets can also hide mistakes. Do the bottoms up analysis. Talk to your assumptions.

For me this requirement/suggestion provokes two strong responses:

1. This is why many of my friends are self/angel funding despite access to venture backing — they intentionally don’t want to aim at a billion dollar market. There’s an incredible amount of energy these days to put together smaller companies meant to own niche markets or carve a minor portion out of a large market. I’m increasingly seeing project ideas which are by design modeled to settle at high leverage ratios of employees:revenue — the 15 person company with $42m in sales. There might be a $10 bill on the coffee table across the room but there’s $8 of quarters in the couch cushions you’re sitting on.

2. This is why you should be careful when taking venture funding. Well understood that the venture market is about home runs and leverage. The venture partner can only manage so many deals so given normal success rates, at any time one of these portfolio company needs to be really swinging for the fences. So they need to bet big. And you need to convince them you’re betting big.

In some cases VCs will push entrepreneurs faster and further than they’d like in order to take this shot. You take venture money, you get told to deliver the hockey stick. And there’s a limited amount of time to figure out if you’re hockey stick-eligible, otherwise there’s opportunity cost to spending time with the portfolio company. End result? In some cases incentives are misaligned. The entrepreneur doesn’t have the investment risk spread like their VC. And in most cases, isn’t as well-off personally either.

When I read about Moritz thinking that YouTube should have held on, and Draper ruing the Skype sale, incentive misalignment definitely raises its head.