Strategy to raise money for smaller market size

From what you are saying your business is doing great. With sales like that you should be able to raise easily.

Put a good and simple presentation and start investment round. Most investors wouldn't mind if your business is niche, as long as your financial projections look good.

Put together a financial figures and see a consultant or advisor, then revise your financial plan. It's trial and error process, so do not hesitate.

Small market size is a very real problem for investors.

First a little background. Many venture capital (VC) firms raise money from limited partners (LPs) and invest money on their behalf. Many LPs expect a 10x return on their investment. Because most startups fail, VCs try to invest in "homeruns" - companies that may return 100x on their investment. This way, if a VC invests in 10 companies, and 9 strikeout and 1 hits a homerun, then the VC gets their 10x return for their LP. Because your company has a small market size, you are not going to provide a 100x return. You may provide a 10x return but a VC is looking for companies that can make the return worth it for their entire portfolio (since most will fail.) This is a gross simplification of the problem but sets the general context.

Ok, so now what? Target angel investors. Since most angels are investing their own money, they don't have the same constraints as VCs. You've already done a great job of de-risking the business so it's likely that you won't strikeout. You will likely hit a "single" or "double" - a decent return. There are angels who will love your business because you have already validated your product and have paying customers.

Another option. One caveat on this option - it can be risky and you should definitely stay true to your vision, only do it if you really believe in it. You can try identify a much bigger vision thinking well beyond your current product. Based on this vision, you could raise money from VCs under the premise that you will use the money to experiment with your existing product working it towards the bigger vision. Your current niche is your "beach-head" where you prove out the model and then you scale the product in other markets/niches.

How much money are you looking to raise? If it's not significant, go after the friends and family money. You might be surprised just how much money you can raise from your personal network. Then seek smaller local investors. Most people that own their own business are open to investments in other businesses if they like the idea, and can afford the expense at the time. I wouldn't be surprised if you were able to raise upwards of $150,000 - $200,000 between these two sources. And they usually don't care as much about market size, or exit strategy as investors do.