Startup founders face a perplexing and even contradictory capital market in 2025, in response to Sapphire Ventures accomplice Cathy Gao. “Capital isn’t scarce. However entry to that capital is more durable 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 surroundings. And they should begin with a actuality verify.
To start, she mentioned, it’s essential to notice that just one in 5 startups that elevate a Collection A ever make it to lift a Collection C. And, prior to now 12 months, the bar for elevating late-stage capital has solely risen; traders are now not simply chasing momentum, as many had been in the previous couple of years — they’re chasing certainty, Gao mentioned.
“Traders at the moment are 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 absolutely simple?’”
Corporations elevating Collection C rounds ought to meet sure standards. For one, they’re all class leaders, in response to Gao.
“They’re defining their classes. They’ve clear go-to-market and simple pull,” she mentioned. “Briefly, 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 trying to elevate 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, development, and retention, she mentioned, but when traders will not be offered on the concept an organization can actually turn into a frontrunner of their respective house, 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 wonderful metrics but someway elevate an acceptable Collection C spherical. In a single case, a startup nabbed greater than a $2 billion valuation, she famous. “They had been successfully capable of talk the story to traders why this firm might be a number one firm over time,” Gao mentioned of the corporate’s profitable elevate.
One other Gao rule: continuity is best 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 development 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 enhance for each new person 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 probably 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 put money into an organization on the Collection B degree, however they often have identified the corporate for a 12 months or longer.
“Meaning on the Collection A, regardless that we’re not actively leaning in to try to elevate, we’re attempting 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 put money into, and what firms they’ve backed just lately. Create a distribution record and ship out periodic updates to the traders on it, she mentioned. “That is a straightforward solution to preserve inventors within the loop.”
Maybe most significantly, nonetheless, Gao famous that an organization trying to elevate a Collection C shouldn’t enter a fundraise till they’ve acquired a sign from a number of corporations that they’re excited about backing the spherical.
“The very last thing you wish to do is time the market incorrectly,” she mentioned. In any case, timing is every little thing on the Collection C degree. “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.”
