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 Collection C stage, to navigate this explicit financial setting. And they should begin with a actuality verify.
To start, she stated, it’s vital to notice that just one in 5 startups that increase a Collection A ever make it to boost a Collection C. And, prior to now 12 months, the bar for elevating late-stage capital has solely risen; buyers are now not simply chasing momentum, as many had been in the previous couple of years — they’re chasing certainty, Gao stated.
“Traders are actually 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 de facto simple?’”
Corporations elevating Collection 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 simple pull,” she stated. “Briefly, they’re rising effectively, however there’s additionally traction to point out that these are really the market leaders within the areas that they function in.”
Corporations trying to increase a Collection C also needs to do not forget that metrics don’t at all times equal cash. Certain, metrics are vital, as are annual returns, development, and retention, she stated, but when buyers will not be offered on the concept an organization can really develop into a pacesetter 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 in some way increase an appropriate Collection C spherical. In a single case, a startup nabbed greater than a $2 billion valuation, she famous. “They had been successfully in a position to talk the story to buyers 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 sooner than buyers 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 Collection C, buyers 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 improve for each new consumer you carry on board?,” she requested.
If the reply is sure, then buyers will “lean in,” Gao stated; if the reply is “no,” then buyers are almost 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 spend money on an organization on the Collection B stage, however they often have identified the corporate for a 12 months or longer.
“Which means on the Collection A, though 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 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 buyers.
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 wish to spend money on, and what firms they’ve backed just lately. Create a distribution record and ship out periodic updates to the buyers on it, she stated. “That is a straightforward strategy to maintain inventors within the loop.”
Maybe most significantly, nonetheless, Gao famous that an organization trying to increase a Collection C shouldn’t enter a fundraise till they’ve acquired a sign from a number of corporations that they’re taken with backing the spherical.
“The very last thing you need to do is time the market incorrectly,” she stated. In any case, 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.”
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