Raising Capital in a Tough Market

How to win investor trust despite market hesitations and higher benchmarks.

DEAR STAGE 2: The fundraising landscape seems more challenging than ever. We're starting to raise our next round and are facing investor hesitations, even with solid growth numbers. How can we navigate this and maximize our chances of success? ~FUNDRAISING IN TOUGH TIMES

DEAR FUNDRAISING IN TOUGH TIMES: Raising capital in today’s market is no easy feat. With investors becoming more selective and cautious, it’s natural to encounter hurdles even with strong metrics. Recently, we held a roundtable discussion with Sakib Dadi, a partner at Stage 2 Capital, who shared practical advice on how founders can better position themselves in this challenging fundraising climate. Here’s how to navigate these headwinds effectively:

1. Focus on Finding Investors Who Believe in Your Market

Sakib highlighted that one of the most significant roadblocks founders face is wasting time with investors who lack conviction in the market they’re addressing. “Some investors come in with preconceived notions about your space,” he explained. “Even if the numbers look great, they may still pass because they don’t see the opportunity.”

You can address this by pre-qualifying investor interest early. Before diving into a deep discussion, figure out whether the investor has a thesis or a track record of investing in your industry or adjacent spaces.

2. Meet Key Benchmarks—Because Investors Are Looking for Reasons to Say No

Even with compelling growth numbers, investors today are holding startups to higher standards. Sakib emphasized that “investors are looking for reasons to say no.” Whether it’s retention rates, burn ratio, or growth, every metric is scrutinized more than ever.

• Benchmark expectations are higher: Benchmark expectations have also increased. For example, what might have been sufficient revenue milestones to raise a Series A or Series B just a few years ago are now noticeably higher. You can check out more on Series B milestones that we pulled together with input from a number of investor here.

How to address this:

• Before launching your raise, audit your metrics against current market benchmarks. If there are gaps, either improve those numbers (if feasible) or prepare a compelling narrative to explain why your business is still a great investment.

3. Control the Narrative Around Your Business

In a crowded market, investors need to understand why your company is unique—and it’s your job to ensure they see the opportunity clearly. “If you don’t control the narrative, investors will create their own stories,” Sakib advised..

How to address this:

• Use storytelling to highlight your strengths. For example, if your product has defensible data advantages or is a system of record, make sure to articulate these points clearly. Investors want to understand why your business is a must-have, not a nice-to-have.

4. Address the Role of AI Without Forcing It

If your product doesn’t have a core AI component, don’t feel pressured to shoehorn it into your pitch. However, investors are eager to see how companies are adapting to or preparing for the AI wave.

Sakib advised having an answer to the AI question. “Whether it’s an internal efficiency play or a future-facing feature, demonstrate your preparedness for AI,” he said.

How to address this:

• If AI isn’t currently central to your product, frame it as a future enabler: “We’ve built a strong foundation that allows us to layer AI into the platform when the timing and ROI make sense.”

5. Leverage Your Existing Investors and Networks

Finally, Sakib emphasized the importance of leaning on your current investors. They’ve already bet on your success and are invested in seeing you grow.

How to address this:

• Tap your investors for introductions: Stage 2 works with our founders with a curated list of relevant investors. This can save time and increase your odds of finding the right fit.

• Use your investors as sparring partners: “We’re on your side,” Sakib reminded founders. Honest feedback and guidance from your current investors can help refine your pitch and identify blind spots before engaging with new investors.

Fundraising in a cautious market requires extra diligence, clear storytelling, and the willingness to adapt. By targeting the right investors, controlling your narrative, and leaning on your network, you’ll give yourself the best chance of success—even in a tough environment.

Until next week!