Cathy Gao, partner at Sapphire Ventures, dropped some serious wisdom bombs during her appearance at TechCrunch’s All Stage conference in July. Her discussion focused on the challenges and strategies startup founders face when aiming to raise Series C funding in today’s economic environment. Startup impossible Made In Space’s Gao highlighted the difficulty for startups to grow up. Market failure Only one in five startups that gets through the gauntlet to raise Series A funding ever raises a Series C.
In her keynote speech, Gao pointed to an important shift. The bar for winning late-stage capital has been raised significantly in just the last year. “Investors have to explain why a company will win in the future,” she stated, highlighting the shift in investor priorities towards certainty rather than mere momentum. This shift is part of a larger movement where investors are holding companies to higher standards and in turn getting pickier about which companies they’ll support.
Gao pointed out that effective fundraising doesn’t just happen without a plan. She gave the strong recommendation to companies to not start a fundraise until they’ve received interest from several firms. “It’s not about luck, pitching to a 50 and hoping that one says yes,” Gao remarked, stressing the importance of a well-executed strategy.
She provided an example of a startup that achieved a remarkable valuation of over $2 billion, illustrating the potential rewards for companies that effectively demonstrate their leadership and sustainability in their respective markets. Gao elaborated on this concept by asking, “Is this company truly a winner in whatever market that they’re serving?” This question has become an important litmus test for investors and founders and should be.
Gao went on to underscore the value of continuity inside of a firm. “The last thing you want to do is time the market incorrectly,” she cautioned, indicating that establishing a stable growth trajectory is more beneficial than relying on short-term spikes in virility. She’s convinced that the best companies work to own the very categories they compete within. They do this through a well-defined go-to-market strategy and market pull that you can’t argue with.
To help founders get the upper hand when it comes to building relationships with investors, Gao suggested creating a “lightweight investor CRM.” “This is an easy way to keep investors in the loop,” she explained, emphasizing that maintaining communication with potential investors is crucial for building trust and confidence.
Gao is now Vice President, Investments at Sapphire Ventures, which has a proven track record for best investment practices. The firm primarily invests in Series B companies, usually after developing relationships over a year or more. This approach allows them to develop greater understanding and conviction about companies they are considering investing in. It makes sure their actions are in line with their stated investment philosophy.
“Capital isn’t scarce,” Gao remarked, “but access to that capital is harder than ever.” This quote really sums up the current environment for startups looking for funding, as the competition becomes more cutthroat and investor expectations continue to increase. As companies navigate this challenging landscape, Gao’s insights serve as a valuable resource for those looking to elevate their fundraising efforts.