Navigating Series C Funding: Crucial Considerations for Startup Founders

In the dynamic capital market landscape of 2025, startup founders face a complex and somewhat paradoxical reality, as articulated by Cathy Gao, Partner at Sapphire Ventures, during her speech at in July. “Capital is not scarce,” she asserted, “but accessing that capital has become more challenging than ever.”

Gao emphasized that navigating this economic environment can be achievable for startup founders, particularly those in the Series C stage, and they must begin with a candid self-assessment. It is crucial to acknowledge that only approximately 20% of startups that secure a Series A funding round ultimately progress to raise a Series C. In the past year, the threshold for securing late-stage capital has escalated; investors are no longer merely pursuing momentum, as they have in recent years, but instead are seeking certainty.

Investors, Gao explained, are now posing questions such as “Is this company a genuine contender within the market it serves?” The focus has shifted from “is this company growing?” to “is this company on a trajectory where the potential for success is indisputable?”

Companies seeking Series C funding should meet specific criteria. They are, by definition, category leaders, according to Gao. These companies not only define their categories but also demonstrate clear go-to-market strategies and possess undeniable market pull. In essence, they exhibit efficient growth and have evidence to support their position as market leaders within their respective sectors.

Metrics do not always translate directly into financial resources, Gao cautioned. While metrics such as annual returns, growth, and retention are important, if investors are not convinced that a company can ascend to become a dominant force in its field, they will likely move on. “Investors need to articulate why a company will triumph in the future,” she continued. There are instances of companies with lackluster metrics that have still managed to secure successful Series C funding rounds. In one such instance, a startup secured a valuation exceeding $2 billion, Gao noted. “Their ability to communicate the story to investors about why this company will become a leading player over time was instrumental in their success.”

Gao also stressed that sustainability trumps short-term popularity. In today’s era of artificial intelligence, companies are growing at rates never before seen by investors. However, Gao pointed out, “what goes up can just as quickly come down.” As such, the question becomes, “is this growth sustainable?”

Investors at the Series C stage seek to identify “compounding loops,” or evidence that the company strengthens as it scales. “Does your product improve for every new customer you acquire? Does your customer acquisition cost decrease or increase for each new user you onboard?” Gao inquired. If the response is affirmative, investors are likely to “lean in”; if not, they are likely to “lean out,” even if a company’s metrics appear impressive.

Gao further advised founders to approach fundraising as they would a go-to-market campaign and prioritize cultivating relationships with venture capitalists before soliciting capital from them. Sapphire Ventures, for instance, typically invests in companies at the Series B level but often has a pre-existing relationship with the company, having known it for a year or more.

“At the Series A stage, even though we’re not actively leaning in to raise funds, we’re attempting to build a relationship with the company and its founder,” she said. “We’re gathering information and developing a comprehensive understanding of how this company has evolved.”

Founders should begin constructing a “lightweight investor CRM” or a database managing their relationships with investors. Investors take notes during meetings with founders, and founders should do the same, recording partner names, investment preferences, and recent portfolio companies. Creating a distribution list and sending out periodic updates to these investors is an effective way to keep them informed.

Perhaps most crucially, Gao emphasized that a company seeking Series C funding should not initiate a fundraising process until they have received indications of interest from multiple firms interested in backing the round. “The last thing you want to do is misjudge the market,” she said. Timing is critical at the Series C level. “It’s not about relying on luck and pitching to 50 in hopes that one says yes,” she continued. “It’s really about timing and strategic planning ahead.”