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 specific financial surroundings. And they should begin with a actuality test.
To start, she stated, it’s vital to notice that just one in 5 startups that elevate a Sequence A ever make it to boost a Sequence C. And, previously yr, the bar for elevating late-stage capital has solely risen; buyers are now not simply chasing momentum, as many had been in the previous few years — they’re chasing certainty, Gao stated.
“Buyers 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 simple?’”
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 simple pull,” she stated. “In brief, 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 must also 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 usually are not bought on the concept an organization can actually develop into a frontrunner of their respective area, then they’ll transfer on.
Techcrunch occasion
San Francisco
|
October 27-29, 2025
“Buyers have to clarify why an organization will win sooner or later,” she continued. For instance, there are corporations that don’t have superb metrics but by some means elevate an acceptable Sequence 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 will likely be a number one firm over time,” Gao stated of the corporate’s profitable elevate.
One other Gao rule: continuity is best than short-term virility.
Within the age of AI, corporations 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 Sequence C, buyers are searching 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 deliver on board?,” she requested.
If the reply is sure, then buyers will “lean in,” Gao stated; if the reply is “no,” then buyers are more than likely 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 instance. Sapphire likes to put money into an organization on the Sequence B degree, however they often have identified the corporate for a yr or longer.
“Which means on the Sequence A, regardless that we’re not actively leaning in to attempt to elevate, we’re attempting to construct a relationship with an organization and with the founder,” she stated. “We’re getting data and we’re creating 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.
Buyers 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 put money into, and what corporations 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 solution to maintain inventors within the loop.”
Maybe most significantly, nevertheless, Gao famous that an organization trying to elevate a Sequence C shouldn’t enter a fundraise till they’ve obtained a sign from a number of corporations that they’re serious about backing the spherical.
“The very last thing you wish to do is time the market incorrectly,” she stated. In any case, timing is every little thing 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.”