How To Tell If Your Startup Is Ready to Raise Outside Funding

You’ve identified a pain point. You’ve come up with a solution. You’ve thought through your offering—and it’s a winner. You’re ready for next steps, and you’re ready to raise some funding.

Or are you?

Before working your contacts and networking like crazy to connect with VCs, you need to make sure that you’ve fully assessed the business opportunity.

Ask yourself these key questions to prepare for a raise—because if you don’t ask yourself these questions, you can be sure that the VC on the other side of the table will…and you better be ready:

1. Is it a good market opportunity?

You may think you’re solving a problem, but do others agree? Do your research. Start by figuring out who your target market is—and no, not everyone is your target market. Identify those segments that will be your best potential customers and use financial projections to predict how much you will be able to sell to them. Then go out there and talk to these potential customers. Do they see value in your offering? Does it work the way they want it to? If so, that’s market potential.

2. Is there revenue potential?

VCs are interested in seeing real revenue potential. It all comes down to this: if your company doesn’t have the potential to earn significant revenue, what’s in it for an investor? Use your sales projections to calculate your potential revenue growth. In addition to this, calculate the spending that will be necessary to achieve this revenue. You can also do some competitive analysis at this point, researching similar companies to find out their gross margins, profit, and overhead, and use these findings as a guidepost.

3. Does it have potential for large-scale growth?

Revenue potential goes hand-in-hand with large-scale growth. Will there be increasing need for your offering and a growing customer base? In the early stages, you’re not ready to scale yet, but you need to already be thinking about scaling. Do you have the infrastructure and financial, legal, and HR systems in place to support you as you scale? Is your original idea enough to sustain growth or will you need to seek out expansion opportunities?

4. Is it a good time for this idea?

Timing is essential. While your idea might have been a winner last year, if the time isn’t right right now, you’re out of luck. Working in a hot sector? Have a solution that stands out? Solving a topical problem? Then timing is on your side.

5. Do you have the right team in place?

Just as it’s not always what you know, but whom you know. In the world of investment capital, the motto could read: It’s not what you’re doing, but who you are. If you don’t have an impressive management team, you’re not going to get very far. Of course if your team has a successful track record and/or experience in the industry, you’re a step ahead in the game. If you’re a new entrepreneur, you can at least make a good team impression by demonstrating a united front, showing that your team knows their business and works well together.

6. Do you have the right technology in place?

Do you have the right technology to power your solution? It’s not necessary that you have state-of-the-art technology (though that’s an obvious plus!), but you do need to be sure that you have the proper technology and that you will be able to maintain your competitive advantage with future tech developments further down the road.

In a sense, all of these questions boil down to one big question: Is this something that VCs would be interested in? Every successful—and unsuccessful—entrepreneur knows that a good idea isn’t enough. VCs want to know that your idea has wings. Answering these questions, and using your responses as the foundation for your pitch deck, will help you prove to even the most jaded VCs that your idea is going to fly.

As read on the WeWork blog.