Essential Strategies for Founders Approaching Series C Funding

Cathy Gao, a partner at Sapphire Ventures, emphasizes that startup founders face a complex and somewhat paradoxical capital market in 2025. “Although funding is abundant, accessing it has become more challenging,” she noted.

In her presentation at TechCrunch’s All Stage conference in July, Gao highlighted that those nearing their Series C are especially skilled at navigating this distinctive economic landscape. She underlined the importance of a reality check.

She pointed out that merely 20% of startups that attain Series A funding advance to Series C. Over the past year, the criteria for securing late-stage funding have become stricter, with investors now prioritizing certainty over trending topics, according to Gao.

“Investors are now questioning: ‘Is this company truly competitive in its market?’” Gao explained. “The focus has shifted from ‘Is this company growing?’ to ‘Is this company on a clear trajectory towards significant potential?’”

Startups seeking Series C funding must fulfill certain criteria. Gao stressed the need for them to lead in their specific markets.

“These startups are carving out unique niches, employing targeted go-to-market strategies, and demonstrating strong demand,” she elaborated. “In essence, they are growing successfully, backed by compelling proof that they are frontrunners in their sectors.”

Founders pursuing Series C funding should remember that metrics do not always equal capital. While metrics, annual returns, growth, and retention are vital, she warned that if investors doubt a company’s capability to thrive, they will seek alternatives.

“Investors need to be able to articulate why a company will succeed in the future,” she continued. Some companies, even with average metrics, still successfully draw in significant Series C funding. For instance, a startup managed to achieve a valuation exceeding $2 billion by effectively showcasing its potential as a long-term leader, Gao mentioned.

Gao also pointed out that consistency is more prized than fleeting moments of virality.

In the present AI-driven market, companies are enjoying unprecedented growth rates, she noted. “However, what escalates quickly can also decline just as swiftly,” Gao remarked. “Thus, the pivotal question is: ‘Is this growth sustainable?’”

During a Series C round, investors look for “compounding loops,” where the company strengthens as it scales, she indicated.

“Does your product improve with every new customer? Does your CAC [customer acquisition cost] change with each additional user?” she inquired.

If the answer is affirmative, investors are likely to “lean in,” Gao asserted; otherwise, they may “lean out,” even if the metrics appear robust.

Finally, she advised founders to treat fundraising as a go-to-market strategy and cultivate relationships with VCs before seeking funds. Gao emphasized her firm’s approach of investing at the Series B level, typically after building a relationship with the company over time.

“In the Series A phase, even if we aren’t actively seeking to invest, we prioritize fostering a relationship with the company and its founder,” she observed. “We gather insights and build a comprehensive understanding of the company’s trajectory.”

She also recommended that founders establish a “lightweight investor CRM” to manage connections with potential investors.

Founders should take notes during meetings with investors, just as investors do, she stressed. They should log the names of investors, their interests, and recent investments. Additionally, they might consider creating a distribution list for regular updates, as “this is a straightforward way to keep investors informed.”

Most importantly, Gao highlighted that any company aiming for Series C should not start fundraising until they have received interest signals from multiple firms willing to back the round.

“Misjudging market timing is the last mistake you want to make,” she cautioned. Timing is crucial at the Series C stage. “It’s not just about pitching to 50 investors and hoping for one positive response. Success relies on strategic timing and meticulous planning,” she concluded.