Essential Tips for Founders Preparing for a Series C Funding Round

Cathy Gao, a partner at Sapphire Ventures, asserts that startup founders are facing a perplexing and somewhat conflicting capital market in 2025. “While capital is readily available, the challenge lies in accessing it more than ever before,” she noted.

During her talk at TechCrunch’s All Stage conference in July, Gao emphasized that startup founders, especially those nearing their Series C stage, can adeptly maneuver through this distinctive economic terrain. She highlighted the importance of a reality check.

Firstly, she pointed out that only 20% of startups that receive Series A funding progress to secure a Series C. Over the past year, the standards for obtaining late-stage capital have become stricter; investors are now seeking certainty rather than merely chasing momentum as they did in previous years, according to Gao. 

“Investors now question: ‘Is this company truly a contender in its market?’” Gao explained. “The emphasis has shifted from ‘Is this company growing?’ to ‘Is this company on a clear path for significant upside?’”

Startups aiming for Series C funding must fulfill certain criteria. Gao mentioned that they need to be category leaders.

“They’re carving out unique niches. They have well-defined go-to-market strategies and evident demand,” she elaborated. “In essence, they are growing efficiently, with substantial evidence indicating they are the market leaders in their respective sectors.”

Founders seeking a Series C should remember that metrics do not always equate to capital. While metrics, annual returns, growth, and retention are vital, she cautioned that if investors are not convinced a company can establish itself as a leader in its field, they will look for alternatives.

“Investors need to convey why a company will thrive in the future,” she continued. Some companies lacking stellar metrics still manage to secure significant Series C funding. For instance, one startup achieved a valuation of over $2 billion by effectively communicating to investors its potential as a leading player over time, Gao explained.

Another principle Gao shared emphasized that consistency holds greater value than temporary virality.

In today’s AI-driven landscape, companies are growing at unprecedented speeds, she observed. “However, what escalates rapidly often collapses just as quickly,” Gao remarked. “Thus, the vital question remains: ‘Is this growth sustainable?’”

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

“Does your product enhance with each new customer? Does your CAC [customer acquisition cost] decrease or increase with every new user you gain?” she queried.

If the answer is yes, investors are likely to “lean in,” Gao stated; if no, investors will probably “lean out,” regardless of seemingly robust metrics.

Lastly, she advised founders to treat fundraising like a go-to-market campaign and to build relationships with VCs before pitching for capital. Gao referenced her firm’s practice of investing at the Series B level, typically after developing a rapport with the company over at least a year.

“At the Series A stage, even if we’re not actively pursuing investment, we focus on fostering a relationship with the company and its founder,” she noted. “We gather insights and create a thorough understanding of the company’s journey.”

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

Founders should take notes during meetings with investors, just as investors do with them, she emphasized. They should log the names of investors, their areas of interest, and recent investments. Additionally, founders can set up a distribution list for periodic updates, as “this is a simple way to keep investors informed.”

Most crucially, Gao stressed that any company aiming for a Series C should avoid initiating fundraising until they have received interest signals from multiple firms willing to back the round.

“Misjudging market timing is the last thing you want to do,” she said. Timing is key at the Series C stage. “It’s not merely about luck in pitching to 50 investors and hoping for one affirmative reply. Success relies on strategic timing and meticulous planning,” she concluded.