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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.


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