Every entrepreneur will encounter this question from investors when raising funds. Here's the right way to answer it.

The opinions expressed by entrepreneurs contributors are their own.

Why are you fundraising? If you're a startup, the answer seems obvious: you need . Aside from the flippant answer, you need to keep your star employees, acquire customers, pay for cloud services/hosting/whatever - oh, and also pay your founders so you can all live on and keep running the company.

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That said, if you've raised money before, you'll know they're not exactly asking to invest in your business if you tell them you're raising so you can pay you, pay your employees and run your business.

So what are you supposed to say? Maybe, "In order to grow 5000%?" It's better, but it's not particularly believable no matter how many you roll. At this point, you might think the answer is obvious. Obviously, you need to describe how you are going to grow by 5000%. But no, that's not true...or at least it's not quite right.

Related: 6 Tips for Raising Your First Round of Funding

The goal is to climb in the next round

If you're a true startup aiming for massive growth, you'll always have a next round, even if that next round is an acquisition or a . This is the nature of the venture capital treadmill: taking equity financing will continue to increase the total value of the company more than not taking it. If not, you're already out, you're not a "real" startup, and you probably have a "normal" lifestyle (which is fine, but you don't have to worry about the fundraiser), or the business is dying.

Neing a next round is essentially definitional for a startup. There's enough significant growth ahead that now almost always makes sense. While this may be true on the whole, it doesn't answer the question every entrepreneur will encounter when fundraising: "Why now?"

The core of this question isn't just a tactic to get more information or delay the turn. Ultimately, this explains why an investor should invest money this round. Similar to "I will grow by 5000%", the answer "because I will be worth a lot more in the future" isn't the wrong answer, it's just not specific enough.

What will you do with the money this round?

Now that we've fixed that:

You will grow (5000% or otherwise).

You will be worth much more next turn.

Your fundraising goal is simply to reach the next round, not to “never fundraise again” (which implies that your growth will cap fairly quickly).

Here is the roadmap of what you are supposed to say. But more than that, it also tells how you need to scale your business and what to prioritize. What you should really be answering for investors is: what metrics are you going to achieve by using the money now to raise the next round?

Related: How My Company Won VCs and Where It Really Got Us

Why is this the right way to respond and plan your business?

This is concrete, realistic (because a startup must continue to raise funds) and gives investors an idea of ​​what they are buying. "A rocket from a company!" is a naive answer. The best investors want to know what parameters will be achieved, i.e. how much appreciation will I get on my equity/money if I invest now? How much valuation appreciation is the investor actually buying with this amount of money? You can't answer this question until you define what you will do to advance to the next round.

This indicates the size of the cycle (how much money is needed to achieve the metrics) and also gives a basis for assessing whether the price is reasonable or not (what the business will be worth if the team actually executes and achieves these metrics) and finally, a...