Startup founders face a perplexing and even contradictory capital market in 2025, based on Sapphire Ventures companion Cathy Gao. “Capital isn’t scarce. However entry to that capital is tougher than ever,” she stated.
Gao, who spoke at TechCrunch’s All Stage convention in July, stated it’s potential for startup founders, particularly these in later Sequence C stage, to navigate this explicit financial setting. And they should begin with a actuality test.
To start, she stated, it’s necessary to notice that just one in 5 startups that increase a Sequence A ever make it to boost a Sequence C. And, up to now 12 months, 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 stated.
“Traders at the moment are asking: ‘Is that this firm really a winner in no matter market that they’re serving?’” Gao stated. “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 admittedly plain?’”
Corporations elevating Sequence C rounds ought to meet sure standards. For one, they’re all class leaders, based on Gao.
“They’re defining their classes. They’ve clear go-to-market and plain pull,” she stated. “In brief, they’re rising effectively, however there’s additionally traction to indicate that these are really the market leaders within the areas that they function in.”
Corporations trying to increase a Sequence C must also do not forget that metrics don’t at all times equal cash. Positive, metrics are necessary, as are annual returns, development, and retention, she stated, but when traders usually are not offered on the concept that an organization can really change into a frontrunner of their respective area, then they’ll transfer on.
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“Traders have to clarify why an organization will win sooner or later,” she continued. For instance, there are firms that don’t have wonderful metrics but in some way increase an appropriate Sequence 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 might be a number one firm over time,” Gao stated 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 quicker than traders have ever seen earlier than, she famous. “However oftentimes it’s the case, what goes up additionally sharply comes down,”Gao stated. “So the query is, ‘is that this development sustainable?’”
In a Sequence C, traders are on the lookout for “compounding loops,” or seeing that the corporate will get stronger because it scales, she stated.
“Does your product get higher for each new buyer you signal? Does your CAC [customer acquisition cost] lower or enhance for each new person you convey on board?,” she requested.
If the reply is sure, then traders will “lean in,” Gao stated; if the reply is “no,” then traders are most certainly to “lean out,” even when an organization’s metrics look very sturdy.
Lastly, she stated, 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 example. Sapphire likes to put money into an organization on the Sequence B stage, however they often have identified the corporate for a 12 months or longer.
“Which means on the Sequence A, although we’re not actively leaning in to try to increase, we’re making an attempt to construct a relationship with an organization and with the founder,” she stated. “We’re getting info and we’re growing a longitudinal image of how this firm has progressed.”
She stated 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 stated. Founders ought to write down the names of companions, what they prefer to put money into, and what firms they’ve backed not too long ago. Create a distribution listing and ship out periodic updates to the traders on it, she stated. “That is a straightforward approach to preserve inventors within the loop.”
Maybe most significantly, nevertheless, Gao famous that an organization trying to increase a Sequence C shouldn’t enter a fundraise till they’ve obtained a sign from a number of companies that they’re all for backing the spherical.
“The very last thing you wish to do is time the market incorrectly,” she stated. In spite of everything, timing is every thing on the Sequence 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.”
