People come up with ideas all the time — and many of them don’t becomegreat businesses.Perhaps the idea has already beeninvented and patented. Maybe licensing is too expensive to go forward. If the idea is entirely dependent on something that isn’t available to the mainstream yet, you can’t even begin development.

Before founding his third company, Phil Libin had discussions about creating a “ribbonof information” that would capture the stream of someone’s life. Eventually, that researchled toa billion-dollar company, Evernote.

Mastrad, a company founded in 1994 that had its IPO in 2006, has done a combination of licensing and direct distribution for their products. Both companies have filed extensive patents throughout their years of operating.

How can you determine if your idea is worthy of moving forward for funding? Here are a few things to consider:

Market potential

Quite simply, this is how many people your product affects. You want to understand exactly who the target market of your product is so you can clearly identify the size of their spend in that category. That way you can show the potential return on any investment that someone puts in your company.

For example, when creating a new line of IoT (Internet of Things) cooking thermometers, French company Mastrad needed to consider the “Smart Kitchen Appliance” market, which was roughly $890 Million in the U.S. in 2018.

Team viability

Have you ever wondered why many of the funded teams have similar backgrounds, whether educational or work history? Investors like to know what they are getting. They need to knowthe team can do what it says it can do, and past history of success– be it through personal experience or institutional credibility– goes a long way.

For Evernote, Libin looked to people he already knew, like his college friends, family, and myself, to help build his vision.

Future earnings potential

In line with understanding your customer demographics, you also need to know the financial trends of that market. Learn what they spent in that (and related) categories for the past five years, and project out to the next ten. If it’s not a nice big upward trend, it isn’t interesting. In the world of VC funding, “steady is deadly.”

For companies in the FoodTech industry, like Mastrad, the growth potential can be enormous right now. The market was$520 Million in 2014, and it’s projected to hit $3 billion by 2024.

Investor interest

Too many people go to the wrong investors to ask for money. If the person you are talking to is interested in FinTech and you are a FoodTech group, the deal won’t close no matter how nice you are.

Even the most minimal research on your potential investors will help you to understand their expertise. As Warren Buffet says, you shouldn’t invest in businesses you don’t understand, so approaching people who don’t have an understanding of your industry is likely to get you turned down.

Investor Mood

Even if you have everything else lined up perfectly, you still might not get funded because you caught the investor on a bad day, and they saw your deal negatively because of that. They’ve got 20 other options in the pipeline so it’s not a big deal to them.

Any team that wishes to receive funding must satisfactorily pass all of those tests in the eyes of their investor. The streets of Silicon Valley (and elsewhere) are littered with teams who have not.