This week, I listened to a founder pitch his early-stage start-up. The company raised a few hundred thousand dollars a few years ago. Today it’s out raising another $500k to $750k, which it hopes to complete in the next few months.

The company is growing, but it’s not growing rapidly. So I was curious about what milestones they plan to hit with the capital they’re raising. The company wants to extend its runway by a year or two to give it time to reach breakeven.

When investors put money into a company, they’re looking for a return that’s high enough to justify the risk of capital loss they’re assuming. Their ROI can be through appreciation of the company’s value (i.e., their stake is worth more) or through dividends the company distributes from its free cash flow.

When a company is at breakeven, it’s neither losing money (consuming cash) nor making money (generating cash). It’s covering expenses to keep the lights on. If a company is growing rapidly and is at breakeven, that can be a good situation. Cash generated by the company’s operations is being reinvested in growth initiatives. In theory, if it stopped investing in growth, it would have cash available for dividends or a rainy day. But if the company is at breakeven and not growing, or growing slowly, that means it’s generating just enough cash to maintain itself, with little left for anything else.

Breaking even is a key milestone for a company because it means it’s self-sustaining: totally funded by customer revenue. But if a company is raising capital from investors with breakeven as its goal, it’s important to keep in mind that investors are seeking a return. Breaking even means there won’t be cash to pay dividends to investors, so the investors will be looking for their ownership to be worth more. If the company is breaking even but not growing revenue at a material rate and therefore not increasing its valuation, no clear path to an ROI exists. The likelihood that investors will agree to put money into the company is low.

Any founder raising capital to reach breakeven should consider how they’ll generate a return on the capital they’re seeking from investors and include that info in their pitch.