Startup founders face a perplexing and even contradictory capital market in 2025, in keeping with Sapphire Ventures companion Cathy Gao. “Capital isn’t scarce. However entry to that capital is tougher than ever,” she mentioned.
Gao, who spoke at TechCrunch’s All Stage convention in July, mentioned it’s doable for startup founders, particularly these in later Collection C stage, to navigate this specific financial setting. And they should begin with a actuality verify.
To start, she mentioned, it’s essential to notice that just one in 5 startups that increase a Collection A ever make it to lift a Collection C. And, up to now yr, the bar for elevating late-stage capital has solely risen; traders are now not simply chasing momentum, as many have been in the previous couple of years — they’re chasing certainty, Gao mentioned.
“Traders are actually asking: ‘Is that this firm actually a winner in no matter market that they’re serving?’” Gao mentioned. “The query actually isn’t, ‘is that this firm rising?’ The query has shifted to, ‘is that this firm on a trajectory the place the upside is actually simple?’”
Corporations elevating Collection C rounds ought to meet sure standards. For one, they’re all class leaders, in keeping with Gao.
“They’re defining their classes. They’ve clear go-to-market and simple pull,” she mentioned. “In brief, they’re rising effectively, however there’s additionally traction to indicate that these are actually the market leaders within the areas that they function in.”
Corporations seeking to increase a Collection C also needs to keep in mind that metrics don’t at all times equal cash. Positive, metrics are essential, as are annual returns, progress, and retention, she mentioned, but when traders aren’t offered on the concept an organization can actually turn out to be a pacesetter of their respective area, then they’ll transfer on.
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“Traders have to elucidate why an organization will win sooner or later,” she continued. For instance, there are firms that don’t have superb metrics but someway increase an appropriate Collection C spherical. In a single case, a startup nabbed greater than a $2 billion valuation, she famous. “They have been successfully in a position to talk the story to traders why this firm shall be a number one firm over time,” Gao mentioned of the corporate’s profitable increase.
One other Gao rule: continuity is healthier than short-term virility.
Within the age of AI, firms are rising sooner than traders have ever seen earlier than, she famous. “However oftentimes it’s the case, what goes up additionally sharply comes down,”Gao mentioned. “So the query is, ‘is that this progress sustainable?’”
In a Collection C, traders are on the lookout for “compounding loops,” or seeing that the corporate will get stronger because it scales, she mentioned.
“Does your product get higher for each new buyer you signal? Does your CAC [customer acquisition cost] lower or improve for each new consumer you deliver on board?,” she requested.
If the reply is sure, then traders will “lean in,” Gao mentioned; if the reply is “no,” then traders are almost certainly to “lean out,” even when an organization’s metrics look very robust.
Lastly, she mentioned, founders ought to deal with fundraising like a go-to-market marketing campaign and search to develop relationships with VCs earlier than pitching them for capital. Gao cited her agency for instance. Sapphire likes to spend money on an organization on the Collection B stage, however they often have identified the corporate for a yr or longer.
“Which means on the Collection A, although we’re not actively leaning in to attempt to increase, we’re making an attempt to construct a relationship with an organization and with the founder,” she mentioned. “We’re getting info and we’re creating a longitudinal image of how this firm has progressed.”
She mentioned founders ought to begin constructing a “light-weight investor CRM,” or a database managing the relationships with traders.
Traders take notes whereas assembly with founders, and founders ought to do the identical, she mentioned. Founders ought to write down the names of companions, what they wish to spend money on, and what firms they’ve backed not too long ago. Create a distribution checklist and ship out periodic updates to the traders on it, she mentioned. “That is a simple strategy to maintain inventors within the loop.”
Maybe most significantly, nonetheless, Gao famous that an organization seeking to increase a Collection C shouldn’t enter a fundraise till they’ve acquired a sign from a number of companies that they’re fascinated by backing the spherical.
“The very last thing you need to do is time the market incorrectly,” she mentioned. In spite of everything, timing is every thing on the Collection C stage. “It’s not about luck, pitching to a 50 and hoping that one says sure,” she continued. “It’s actually about timing and planning forward.”
