Series C Funding: Key Strategies for Founders Amidst Market Shifts

Startup founders navigating the capital markets in 2025 are encountering a complex environment where capital itself is not scarce, but access to it has become significantly more challenging. Cathy Gao, a partner at Sapphire Ventures, highlighted this paradox at TechCrunch’s All Stage conference, suggesting that founders, particularly those targeting a Series C round, must begin with a dose of reality.

The journey to a Series C is arduous; only about one in five startups that raise a Series A funding round ultimately reach this later stage. In the past year, the criteria for securing late-stage capital have intensified. Investors are no longer solely driven by momentum, a trend prevalent in recent years. Instead, they are prioritizing certainty, seeking companies that demonstrate a clear path to dominance in their respective markets.

“Investors are now asking: ‘Is this company truly a winner in whatever market that they’re serving?’” Gao explained. “The question really isn’t, ‘is this company growing?’ The question has shifted to, ‘is this company on a trajectory where the upside is really undeniable?’”

Companies successful in raising Series C funding typically exhibit several key traits. According to Gao, these companies are category leaders, actively defining their markets with a clear go-to-market strategy and undeniable customer pull. Essentially, they are demonstrating efficient growth alongside solid traction that validates their position as market leaders.

Gao also stressed that while metrics such as annual returns, growth, and retention are vital, they are not sufficient on their own. Investors must be convinced of the company’s potential to become a dominant force in its sector. Without this conviction, even strong metrics may not secure the funding.

“Investors have to explain why a company will win in the future,” she noted, citing examples of startups that secured substantial Series C rounds with valuations exceeding $2 billion, despite not yet having stellar metrics. Their success hinged on their ability to articulate a compelling vision of future market leadership to investors.

Continuity and sustainable growth are paramount, particularly in an era where AI is accelerating company expansion at unprecedented rates. Gao cautioned that rapid growth can often be fleeting. “But oftentimes it’s the case, what goes up also sharply comes down,” she said. “So the question is, ‘is this growth sustainable?’”

For Series C investors, the focus is on identifying “compounding loops” – mechanisms that strengthen the company as it scales. Questions founders should be prepared to answer include whether their product improves with each new customer acquisition and if their customer acquisition cost (CAC) decreases as they onboard more users. Positive answers to these questions encourage investors to commit, while negative responses can lead them to withdraw, irrespective of current performance metrics.

Furthermore, founders should approach fundraising as a strategic go-to-market campaign, emphasizing the importance of cultivating relationships with venture capital firms well before a funding round is needed. Gao shared that Sapphire Ventures often seeks to invest at the Series B stage but prefers to have known the company and its founder for at least a year prior. “We’re getting information and we’re developing a longitudinal picture of how this company has progressed,” she stated.

To manage these relationships effectively, Gao recommended founders build a “lightweight investor CRM” to track interactions and investor preferences. Taking notes during meetings, similar to how investors do, and sending periodic updates to interested parties can keep potential investors informed and engaged.

Crucially, a company should not initiate a fundraise until it has received positive signals of interest from multiple investment firms. “The last thing you want to do is time the market incorrectly,” Gao advised. Success at the Series C level is less about luck and more about meticulous timing and forward planning, moving beyond simply pitching to numerous firms and hoping for acceptances.

The insights shared by Gao underscore the evolving landscape for later-stage startup funding, emphasizing long-term vision, sustainable growth, and proactive relationship management as key pillars for success.