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How Great Is Your Company’s Potential?

Business StrategyWhen last we met, I made the case that financiers tend to eschew companies that don’t fit their investing criteria, specifically with regard to two metrics: “stage” (how developed a company is) and “potential” (opportunity for growth). Understanding where your business fits on those axes determines how you should go about scaring up funding for it. We’ve talked about stage (See: Are You Safe Or Sexy?). Now let’s tackle potential.

Why doesn’t every investor go after projects with the highest potential? In a word: risk. The greater a firm’s potential, the more risk investors may be willing to take–and some investors are willing to take on more risk than others. It’s the same reason some folks flocked to massive hits like Amazon.com (nasdaq: AMZN – news – people ), eBay (nasdaq: EBAY – news – people ) and Google (nasdaq: GOOG – news – people ) in the early years when they were bleeding cash, and others didn’t.

This article originally appeared on Forbes.com.

Are You Safe Or Sexy?

Business StrategyButch Cassidy, the 19th century American philosopher and bank robber once wrote, “I got vision and the rest of the world’s got bifocals.”

Many entrepreneurs feel like Mr. Cassidy–they don’t understand why financiers don’t get as jazzed about their companies as they do.

There are a couple of reasons for this. First, a vast majority of ideas aren’t worth funding–period. Second, and more important, most financiers balk at writing checks to companies that don’t fit their specific investing criteria.

These criteria are best defined by two metrics: stage and potential. Understanding where you fit on those axes will determine how you should go about raising capital.

This article originally appeared on Forbes.com.

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