Part 5/20 - Twenty Questions You Will Be Asked By Venture Capitalists (If You Get That Far)

By Laurence K. Hayward

This is part five of a twenty part series on this topic.

5. How do you know that your business has high growth potential? How did you estimate your revenue figures? How will the business scale?

VCs want to know how you "draw down" your revenue estimates from the market potential figures (which hopefully include estimates from external sources). Ultimately, they want to see a large growth opportunity that scales quickly, thereby allowing them to realize the payoff on their investment as soon as possible. Be prepared to explain in detail the process used to estimate revenues from market potential.

Scalability is one attribute that distinguishes venture capital from other types of investing. It is not sufficient to build a ‘going concern.’ VCs are looking to invest in big opportunities. Once the business is generating revenues, how will it grow to the next level? How much continued investment will be required to build the business? Are large capital expenditures required? Will the gross margins improve with time? What are the limits to growth and how will the company overcome them?

Businesses requiring continued investments to cover capital expenses also require patient investors who are comfortable with the additional financing risks. The risk is not only whether capital can be raised in the future, but also the diluting effects of capital from additional investors.

Laurence K. Hayward is the Founder and CEO of TheVentureLab. To learn more about him follow the link here