What founders should think about if looking to raise a Series C

Startup founders face a perplexing and even contradictory capital market in 2025, in accordance with 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 surroundings. And they should begin with a actuality verify. 

To start, she stated, it’s essential to notice that just one in 5 startups that elevate a Sequence A ever make it to boost a Sequence 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 have been in the previous couple of years — they’re chasing certainty, Gao stated. 

“Traders at the moment are asking: ‘Is that this firm actually 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 de facto plain?’”

Corporations elevating Sequence C rounds ought to meet sure standards. For one, they’re all class leaders, in accordance with Gao. 

“They’re defining their classes. They’ve clear go-to-market and plain pull,” she stated. “Briefly, they’re rising effectively, however there’s additionally traction to point out that these are actually the market leaders within the areas that they function in.” 

Corporations trying to elevate a Sequence C also needs to keep in mind that metrics don’t all the time equal cash. Certain, metrics are essential, as are annual returns, progress, and retention, she stated, but when traders should not bought on the concept that an organization can actually turn into a pacesetter of their respective area, then they’ll transfer on. 

“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 by some means elevate an appropriate Sequence C spherical. In a single case, a startup nabbed greater than a $2 billion valuation, she famous. “They have been successfully capable of talk the story to traders why this firm will probably be a number one firm over time,” Gao stated of the corporate’s profitable elevate.  

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 progress sustainable?’” 

In a Sequence C, traders are in search of “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 improve 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 definitely to “lean out,” even when an organization’s metrics look very robust. 

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 degree, however they normally have identified the corporate for a 12 months or longer. 

“Meaning on the Sequence A, although we’re not actively leaning in to attempt to elevate, we’re making an attempt to construct a relationship with an organization and with the founder,” she stated. “We’re getting data 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 just lately. Create a distribution record and ship out periodic updates to the traders on it, she stated. “That is a straightforward method to maintain inventors within the loop.” 

Maybe most significantly, nevertheless, Gao famous that an organization trying to elevate a Sequence C mustn’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 need to do is time the market incorrectly,” she stated. In any case, timing is all the pieces on the Sequence 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.”