Essential Strategies for Founders Preparing for Series C Funding

Cathy Gao, a partner at Sapphire Ventures, indicates that startup founders are maneuvering through a tough and somewhat paradoxical capital market in 2025. “Although funding is abundant, accessing it has grown increasingly challenging,” she noted.

Speaking at TechCrunch’s All Stage conference in July, Gao emphasized that especially those nearing their Series C can adeptly navigate this distinct economic environment. She pointed out the importance of a reality check.

She mentioned that merely 20% of startups that achieve Series A funding advance to Series C. In the past year, the bar for obtaining late-stage funding has risen; investors now prioritize certainty instead of merely following trends, according to Gao.

“Investors are now questioning: ‘Is this company truly competitive in its market?’” Gao explained. “The emphasis has shifted from ‘Is this company experiencing growth?’ to ‘Is this company on a clear path to significant upside?’”

Startups aiming for Series C funding must fulfill specific criteria. Gao emphasized the need for them to be leaders in their respective categories.

“These startups are carving out unique niches, employing focused go-to-market strategies, and demonstrating clear demand,” she elaborated. “In essence, they are growing effectively, supported by substantial evidence that they are the top contenders in their sectors.”

Founders seeking Series C funding should remember that metrics do not always equate to capital. While metrics, annual returns, growth, and retention are vital, she cautioned that if investors doubt a company’s capacity to lead, they will explore alternative opportunities.

“Investors need to articulate why a company will thrive in the future,” she continued. Some firms, despite having mediocre metrics, still manage to secure substantial Series C funding. For example, a startup achieved a valuation exceeding $2 billion by effectively showcasing its potential as a long-term leader, Gao stated.

Another point Gao raised was that consistency holds more value than momentary virality.

In today’s AI-driven landscape, companies are witnessing unprecedented growth rates, she remarked. “However, what rises rapidly often declines just as quickly,” Gao said. “Thus, the pivotal question is: ‘Is this growth sustainable?’”

In a Series C round, investors seek “compounding loops,” where the company strengthens as it scales, she noted.

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

If the answer is affirmative, investors are more likely to “lean in,” Gao asserted; if not, they may “lean out,” even if the metrics appear robust.

Lastly, she encouraged founders to treat fundraising like a go-to-market strategy and foster relationships with VCs before seeking capital. Gao highlighted her firm’s approach of investing at the Series B level, typically after nurturing a relationship with the company over time.

“During the Series A phase, even if we’re not actively looking to invest, we focus on building rapport with the company and its founder,” she observed. “We gather insights and establish a thorough understanding of the company’s trajectory.”

She also suggested that founders create a “lightweight investor CRM” to keep track of connections with potential investors.

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

Most importantly, Gao emphasized that any company aiming for a Series C should refrain from commencing fundraising until they’ve garnered interest signals from multiple firms willing to support the round.

“Misjudging market timing is the last mistake you want to make,” she warned. Timing is essential at the Series C stage. “It’s not just about luck in pitching to 50 investors and waiting for one positive reply. Success depends on strategic timing and meticulous planning,” she concluded.