According to Cathy Gao, partner at Sapphire Ventures, in 2025, startup founders face a confused and contradictory capital market. “Capacity is not rare, but access to its capital is more difficult than ever,” she said.
Speaking at TechCrunch's All Stage Conference in July, Gao said it was possible for startup founders, particularly those of later Series C stage, to navigate this particular economic environment. And they need to start with a reality check.
First, he said it is important to note that it is important for only one of the five startups that raise Series A to source Series C. Investors are no longer chasing momentum, as many have done in the past few years. They are chasing certainty, Gao said.
“Investors are now asking, 'Is this company really a winner in the market they serve?'” Gao said. “The question really isn't. 'Is this company growing?' the question shifted to “Is this company really an undeniable trajectory?”
Companies procuring Series C rounds must meet certain criteria. According to GAO, they are all leaders in the category.
“They define their categories. They have a pull that can't be denied by a clear market,” she said. “The bottom line is, they're growing efficiently, but they also have the traction that shows that these are in fact market leaders in the space they're operating.”
Companies looking to raise Series C should remember that metrics aren't necessarily comparable to money. Certainly, metrics are important, as are annual revenue, growth, and retention, she said, but if investors are not sold with the idea that investors can be leaders in their respective spaces, they will move on.
TechCrunch Events
San Francisco | October 27-29, 2025
“Investors have to explain why companies will win in the future,” she continued. For example, companies that do not have amazing metrics somehow raise appropriate Series C rounds. In one case, she noted that the startup had a valuation of over $2 billion. “They were able to tell the story to investors about why the company became a major company over time,” Gao said of the company's successful salary increases.
Another GAO rule: Continuity is better than short-term masculinity.
In the age of AI, companies are growing faster than investors have ever seen, she noted. “But in many cases, that's true, what's going up is down sharply,” Gao said. “So the question is, “Is this growth sustainable?” ”
In Series C, she said investors are looking for a “combined loop” or seeing them grow stronger as the company grows.
“Do your product be better for all customers you sign? Your CAC is [customer acquisition cost] Does it decrease or increase with each new user you have? ” she asked.
If the answer is yes, the investors are “leaning,” Gao said. If the answer is “no”, investors are most likely to “slant” even if the company's metrics look very strong.
Finally, she said founders should treat fundraising like a commercial campaign and try to develop relationships with VCs before they can pitch capital. Gao cited her company as an example. Sapphire likes to invest in a company at the Series B level, but they usually know the company for over a year.
“It's Series A and we're trying to build relationships with our company and founders, even if we're not actively trying to promote,” she said. “We're informed and we're developing a longitudinal picture of how the company has made progress.”
She said founders should start building a database that manages “lightweight investor CRMs,” or relationships with investors.
Investors should take notes while meeting with founders, and founders should do the same, she said. Founders should write down the names of their partners, what they want to invest in, and the companies they have recently supported. She said she will create a distribution list and send regular updates to the investors. “This is an easy way to keep the inventor in a loop.”
Perhaps most importantly, GAO noted that companies aiming to raise Series C should not enter funding until they receive signals from multiple companies that they are interested in supporting the round.
“The last thing I want to do is the time the market is wrong,” she said. After all, timing is everything at Series C level. “It's not about luck, I want to pitch to 50 and say yes,” she continued. “It's really about timing and planning.”