You’ve started a business, and it’s beginning to gain some traction. It’s a great idea — early reaction from friends, family and peers has been entirely positive. Your sales forecast looks promising — and now you want to take your product or service to the next level. If you’re like many entrepreneurs, you may be thinking it’s time to court a venture capital firm.

The reality of venture funding is that it’s not as easy to get as the Facebooks and Instagrams of the world make it seem. Why do investors agree to back some businesses but not others? The simple answer is that not all great ideas are a good fit for venture funding. That doesn’t mean the business isn’t viable or won’t succeed; quite the contrary. However, when VCs invest, they’re investing in what matters most to them, and that’s usually a) minimizing their investment risk by b) maximizing their rate of return.

So, how do you know if you have a venture scale business that could be appropriate for VC funding? Before you engage in discussions with a firm, begin by asking yourself a few important questions:

1. Why should they choose my product/idea/service?

Does your venture satisfy a need in a way nobody else’s has, particularly one with mass- market appeal? Do you have an edge in an emerging market? Have you developed a proprietary product or technology with wide appeal? Does your idea solve a major pain point for a wide customer base better, faster, more cost-effectively? Investors are looking for the best return on investment possible, so having a product or service that appeals to a wide swath is a better strategy than one targeted to a niche market. 

2. Do I have a strong, experienced team in place?

VCs aren’t just investing in your idea or product – they’re investing in YOU. That means they need to be confident in your leadership ability and that the executive team under your leadership has the right expertise to successfully steer your company to profitability. 

3. Am I ready for an outside partner?

When you take a venture firm’s money, you’re also taking them on as a partner to some extent, and likely not a silent one. How will you and your executive team feel about answering to an entity outside of your business? Also, ask yourself if taking on this partner will add value to your team. The money is great, but can they also provide you with guidance, experience, or fill a gap in expertise? Those things are important, too.

4. Do my numbers add up, and can I easily speak to the basic metrics?

At the end of the day, VC firms want to know that investing in your company will make them money — significant money. To deliver on that, you may want to think about whether or not your company is experiencing (or is poised to experience) rapid sales growth, and what your gross and net profit margins look like. Under your current operating model, can your business sustain the expectation of a return in excess of 25% annually? Some firms expect annual returns of up to 30-50%.

5. Have you developed an exit strategy?

VCs always invest at the beginning with the end in mind — and the best opportunity for the highest return is in the exit strategy.  You should have a plan in place, and the stronger your company’s potential for acquisition or IPO within 3-5 years, the better.

These are just a few of the questions you may want to consider before courting a venture capital firm. Of course, there are plenty of others — but determining whether your business is truly venture scaled or better served by an alternate funding source (say, by Angel funding or by bootstrapping and organic growth) is important to know before you begin your search.