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In my framework for determining how to finance you startup I claimed that your company must be scalable in order to raise venture capital.

I have also made the argument that IT companies with barriers are most likely to scale. As depicted in the framework below, key barriers in the IT space include economies of scale, data scale and network effects. It’s worth noting that these barriers become more relevant with scale. For very young startups with few customers and little scale, these potential future barriers do little to deter potential entrants.

This begs the question – if you don’t have barriers yet, how can you attract investors?

It’s worth noting that early stage investors vary in the amount of risk that they are willing to take. For some the potential to create barriers is enough, for others your startup must already have started to scale in order to create those barriers.

If you need to demonstrate some scale in order to convince investors, you should consider raising another round of capital from friends and family or angel investors so that you can bootstrap the growth of the company for a little longer.

In general, however, if your company is poised to develop barriers over time, your startup likely meets the barriers requirements of at least some early-stage investors.