Series C Funding: What Founders Need to Know

Navigating the 2025 Startup Funding Landscape

According to Cathy Gao, a partner at Sapphire Ventures, startup founders are currently encountering a capital market characterized by paradox. While capital itself isn’t scarce, securing access to it presents unprecedented challenges.

The Shift in Investor Focus

Speaking at TechCrunch’s All Stage conference, Gao highlighted that successfully navigating this economic climate requires founders to confront current realities. Only a minority – one in five – of startups securing Series A funding ultimately progress to a Series C raise.

The criteria for securing late-stage capital have become significantly more stringent. Investors are no longer primarily focused on rapid growth momentum; instead, they prioritize certainty.

Demonstrating Leadership and Sustainable Growth

Gao emphasized that investors are now evaluating whether a company is demonstrably positioned to win within its target market. The central question has evolved from simply assessing growth rates to determining if a company is on a clear path to achieving substantial and undeniable upside.

Companies pursuing Series C funding should embody specific characteristics. They are typically recognized as category leaders, actively defining their respective markets.

Metrics and the Importance of a Compelling Narrative

These companies exhibit clear go-to-market strategies and strong market demand. They demonstrate efficient growth alongside tangible evidence of market leadership.

While key metrics – including annual returns, growth, and retention – remain important, they are not sufficient on their own. Investors must be convinced of a company’s potential to achieve lasting dominance in its field.

Investors need to articulate a clear vision for a company’s future success. Gao cited an example of a startup securing a valuation exceeding $2 billion despite modest metrics, attributing their success to a compelling narrative that convinced investors of their long-term potential.

Sustainability Over Short-Term Gains

Gao advocates for prioritizing continuity over fleeting virality, particularly in the current environment. The rapid growth fueled by technologies like AI can be deceptive, as rapid ascents are often followed by equally swift declines.

Investors at the Series C level seek “compounding loops” – evidence that the company strengthens with scale.

Key Questions for Investors

Does the addition of each new customer enhance the product? Does the cost of acquiring a customer (CAC) decrease as the user base expands? Positive responses signal a strong investment opportunity, while negative responses may deter investors, even in the face of impressive metrics.

Building Investor Relationships

Founders should approach fundraising as a strategic go-to-market initiative, proactively cultivating relationships with venture capitalists before actively seeking capital. Sapphire Ventures, for instance, prefers to invest at the Series B level, but typically establishes relationships with companies a year or more prior.

This early engagement allows for a comprehensive understanding of the company’s progress and development.

Proactive Investor Management

Gao recommends maintaining a “lightweight investor CRM” – a database for managing investor relationships. Founders should meticulously record details about partners, investment preferences, and recent portfolio companies.

Regular updates to investors via a distribution list are also encouraged, ensuring they remain informed about the company’s evolution. This proactive communication keeps investors engaged.

Timing is Crucial

Crucially, Gao advises against initiating a fundraise until receiving indications of interest from multiple firms. Accurately timing the market is paramount at the Series C level.

Success isn’t about relying on chance; it’s about careful planning and strategic timing. A well-prepared approach significantly increases the likelihood of securing funding.