6 Things Mid-Stage Startups Need to Know Before Seeking Late-Stage Funding

The rules have changed: what worked for your Series A won't work for your Series C

The journey from mid-stage startup to late-stage growth company has never been more challenging. In early 2024, venture capital funding dropped to $76 billion – the lowest we've seen in five years. With money tighter, the bar for late-stage investments has risen significantly.

After years of working with companies making this transition, we've noticed a consistent pattern: there's a noticeable gap between what many founders think late-stage investors want to see and what actually convinces them to write those bigger checks.

Think of it like moving from middle school to high school. The expectations are different. The standards are tougher. And the competition is fiercer.

Many founders who sailed through their early rounds often find themselves unprepared. They're still using the playbook that worked for their seed and Series A rounds, not realizing that late-stage investors are looking for different proof points.

In this article, we'll go through the six most important things mid-stage startups need to understand before approaching late-stage investors. These insights come from patterns observed across hundreds of companies that have successfully (and unsuccessfully) made this transition.

Whether you're preparing for your Series C or already thinking about D and beyond, understanding these six factors will dramatically improve your chances of securing the capital you need to reach the next level.

Let's dive in.

#1: The Investor Expectation Shift

When you raised your Series A, investors were still betting on your potential. They saw a promising product, early customer love, and a big market opportunity. Your pitch was about the future – what you could become.

But when you step into a late-stage investor meeting, something fundamental changes.

Late-stage investors aren't betting on potential. They're investing in execution.

This shift catches many founders off guard. The questions are different. The meetings feel more like financial reviews than visionary discussions. And the metrics that impressed your early investors barely get a reaction.

What Late-Stage Investors Actually Care About

Late-stage investors still want to hear your vision, but they're much more focused on how you're executing against it. They're looking for proof that your business model works – not just that it could work someday.

Here's what they're really evaluating:

These aren't just theoretical concerns. We see this play out in successful funding rounds all the time. Take compliance platform Vanta, for example.

When they raised their $110M Series B at a $1.6B valuation, they faced a market that had already begun to cool. Yet they secured one of the most impressive rounds of the year. Why? Because they didn't just show impressive growth numbers – they demonstrated something far more valuable: increasing efficiency at scale.

While adding hundreds of new customers, they managed to:

• Decrease customer acquisition costs by 22%

• Maintain a remarkable 95% retention rate

• Achieve a payback period under 12 months

This combination of growth, efficiency, and retention justified their unicorn valuation even as investors became more selective. They weren't just growing – they were growing more efficiently over time.

The Metrics That Matter Now

If you're planning to raise late-stage funding in the next 6-12 months, start tracking these metrics now:

• Contribution margin by customer segment (not just overall)

• Net revenue retention (over 120% for SaaS is compelling)

• CAC payback period (under 18 months is the new standard)

• Cash conversion cycle

• Growth efficiency score (Annual growth rate ÷ burn rate)

Many founders discover they don't have good systems for measuring these metrics only when investors start asking for them – at which point it's often too late to show positive trends.

What You Should Do Now

Even if your current investors don't ask for these metrics, start tracking them immediately. Set up dashboards that show not just the current numbers but trends over time.

More importantly, make decisions based on these metrics. When late-stage investors look at your numbers, they'll want to see that you've been optimizing for efficiency – not just growth at any cost.

The companies that successfully raise late-stage funding in today's market aren't just the ones with the biggest growth numbers. They're the ones that demonstrate they can grow efficiently and predictably.

#2: Due Diligence Has Fundamentally Changed

Remember when raising your Series A felt like a sprint? You pitched your vision, showed some traction, and if investors got excited, you could close a round in weeks.

Late-stage fundraising is more like running a marathon while taking a comprehensive exam at the same time.

Due diligence has transformed from a quick check to a forensic investigation.

According to Pitchbook, the average time from term sheet to closed funding has increased 73% since 2021. What used to take 4-6 weeks now commonly stretches to 3-4 months. This extended timeline isn't just about investors being more cautious – it's about the sheer depth of what they're examining.

What Gets Put Under the Microscope

Late-stage investors aren't just kicking the tires – they're taking apart the entire engine to see how it works. Here's what to expect:

• Customer calls: Investors will speak directly with your customers, often without you on the call. They want unfiltered feedback about your product, support, and value proposition.

• Technical deep dives: Engineering leaders will evaluate your architecture, code quality, and technical debt. They're assessing whether your tech can scale 10x from here.

• Detailed cohort analyses: They'll slice your data in ways you might not have considered, examining performance by customer segment, acquisition channel, and time period.

• Legal and compliance reviews: Every contract, patent, and regulatory consideration will be scrutinized. Even small issues can become deal-breakers.

This level of scrutiny catches founders by surprise. We've seen promising deals fall apart because companies weren't prepared for these deeper investigations.

Learning from Trade Republic's Playbook

Trade Republic's journey to securing $900M at a $5.3B valuation shows what excellent due diligence preparation looks like in today's market.

The Berlin-based mobile broker knew investors would have concerns about customer behavior in a volatile market. Rather than making reassuring claims, they prepared comprehensive data that revealed exactly how their customers used the platform during market downturns.

They went beyond basic metrics, giving investors unprecedented access to anonymized usage data that proved:

• User engagement actually increased during market volatility

• Customer deposits remained stable during downturns

• Transaction frequency maintained consistent patterns

By anticipating investor questions and preparing detailed evidence in advance, Trade Republic removed potential obstacles before they could derail the process. Their round closed in 10 weeks – significantly faster than the current average for deals of this size.

Create Your Due Diligence War Room

The best time to prepare for due diligence is long before you need the money. Here's how to get started:

1. Build a comprehensive data room now – don't wait until investors ask for it. Include:

   • Detailed financial models with clear assumptions

   • Customer data organized by cohorts

   • All legal documents and contracts

   • Team structure and hiring plans

   • Technical documentation and roadmaps

2. Run a mock due diligence process with trusted advisors. Have them ask the hardest questions and find the weak spots in your story.

3. Document your processes, especially around sales, customer success, and product development. Late-stage investors want to see systems, not heroic individual efforts.

4. Prepare your team for investor calls. Everyone should understand the key metrics and be able to clearly explain how their department contributes to them.

The most successful fundraises are those where every investor question is anticipated and answered – often before it's even asked.

#3: Your Valuation Psychology Might Need Rewiring

One of the most painful conversations we have with founders happens when discussing valuation expectations. Many mid-stage companies come to late-stage fundraising with numbers in mind that simply don't align with today's market reality.

This isn't just about investors being stingy. The market has fundamentally reset, and clinging to outdated benchmarks can derail an otherwise successful fundraising process.

The New Valuation Reality

The data tells a sobering story. According to CB Insights, in 2023, a remarkable 57% of late-stage rounds were flat or down rounds. Companies that had been valued at 50-100x revenue suddenly found themselves being evaluated at 5-15x revenue.

This isn't temporary – it's a return to historical norms after years of unusual exuberance.

Many founders make the mistake of anchoring to:

• Valuations from 2020-2021 (the peak of the market)

• The highest valuations in their sector rather than the average

• Their last round's valuation plus expected growth

These anchors can lead to months of fruitless conversations with investors who see a completely different reality.

Cart.com's Strategic Valuation Approach

The companies that successfully navigate today's fundraising environment take a fundamentally different approach to valuation. Cart.com's path to securing its $60M Series C at a $1.2B valuation provides a perfect example.

Instead of starting with a valuation target, Cart.com's leadership focused first on its capital needs and strategic milestones. They determined exactly how much funding they needed to reach profitability and identified the growth initiatives to create the most value.

When meeting with investors, they:

• Presented multiple growth scenarios with different funding requirements

• Focused conversations on how investment would translate to value creation

• Demonstrated clear understanding of industry benchmarks

• Proposed milestone-based valuation increases rather than a single fixed number

This approach shifted the conversation from "what we're worth today" to "what we'll be worth after deploying this capital effectively." It helped them close their round faster and positioned them for stronger performance in follow-on funding.

Rewiring Your Valuation Mindset

To succeed in late-stage fundraising today, founders need to embrace several mental shifts:

1. Valuation is a milestone, not your company's worth. A financing valuation is just one point on your journey, not a verdict on your company's true value.

2. Lower valuations with favorable terms can be better than high valuations with punitive terms. A clean term sheet at a reasonable valuation often creates more long-term value than a headline-grabbing number with aggressive liquidation preferences or other investor protections.

3. Capital efficiency directly impacts valuation multiples. Companies that demonstrate they can do more with less money now receive premium valuations compared to peers with similar growth but higher burn rates.

Benchmarking Realistically

Before entering valuation discussions, do your homework:

1. Identify 5-10 companies at a similar stage and in related sectors that have raised in the last 12 months.

2. Research their revenue multiples and growth rates at the time of funding.

3. Plot your own growth and efficiency metrics against these benchmarks.

4. Be prepared to explain why your company deserves a premium or should be viewed differently.

Remember, valuation is ultimately a negotiation based on leverage. The best way to improve your position isn't by arguing for a higher multiple – it's by improving your underlying metrics and creating options (including the option to delay fundraising).

#4: Debt Is No Longer a Last Resort

For years, many founders viewed debt as the funding of last resort – something you turned to when you couldn't raise equity or were desperate to avoid dilution. That mindset is now outdated and potentially costly.

Strategic companies are deliberately combining equity and debt to optimize their capital structure.

This isn't about being unable to raise equity. It's about being smarter about which type of capital is best suited for different aspects of your growth plan.

Debt as a Strategic Tool

The numbers tell a compelling story. According to Pitchbook, venture debt deals increased by 35% in 2023 while equity deals declined. This wasn't desperation – it was strategy.

Today's sophisticated founders recognize that different types of capital serve different purposes:

• Equity: Best for high-risk initiatives with uncertain returns (new market entry, R&D, long-term initiatives)

• Venture Debt: Ideal for predictable growth with clear economics (inventory financing, receivables backing, bridge to profitability)

• Revenue-Based Financing: Well-suited for initiatives with direct ROI (marketing campaigns, sales team expansion)

Using the right tool for each job can dramatically improve your capital efficiency and preserve ownership.

OneLogin and Grover: Masters of the Mixed Approach

One company that exemplifies this strategic approach is Grover.

The Berlin-based tech subscription service secured $260 million in debt financing from M&G asset management to fund inventory expansion. Because subscription hardware has predictable returns and tangible assets, debt made perfect sense. This funding allowed them to:

• Expand their product inventory by 200%

• Enter three new European markets

• Grow their customer base by 50% within a year

By reserving equity for its market expansion strategy and using debt for inventory, Grover optimized their capital structure and maintained founder ownership through a critical growth phase.

Designing Your Optimal Capital Mix

How do you determine if alternative funding sources make sense for your company? Start by breaking down your growth plan into distinct initiatives and asking:

1. How predictable are the returns? More predictable initiatives are better candidates for debt.

2. Are there tangible assets involved? Hardware, inventory, and receivables can often be financed with debt.

3. What's the timeframe for ROI? Shorter payback periods align better with debt structures.

4. How critical is control? Areas where you need maximum flexibility might justify the higher cost of equity.

Getting Started with Alternative Funding

If you've never explored beyond equity, here are practical steps to begin:

1. Talk to debt providers early – months before you need capital. Venture debt relationships, like equity relationships, benefit from being developed over time.

2. Review your existing banking relationships. Many traditional banks now offer venture debt products to their startup clients.

3. Consider specialized providers for specific needs – inventory financing, revenue-based financing, or AR financing often have dedicated platforms.

4. Structure options thoughtfully. Covenants, warrants, and payment terms vary widely and can significantly impact the true cost of debt.

Remember, the goal isn't to avoid equity entirely – it's to create an optimal capital structure that funds each part of your business with the most appropriate type of capital.

#5: Strategic Partners Have Replaced Passive Capital

In the era of abundant capital, founders could afford to be somewhat indifferent about where their money came from. As long as the valuation was right and the term sheet was clean, one investor's dollars were largely the same as another's.

That era is definitively over.

Today, who writes your check matters almost as much as how big that check is.

With capital no longer the primary constraint for many businesses (good ideas executed by strong teams can still get funded), the differentiating factor has become what investors bring beyond money.

The New Value Equation

The data supports this shift in thinking. Companies with strategic investors on their cap table exit 2.3x more frequently than those with financial investors alone. This isn't coincidence—it's causation.

Strategic investors provide crucial advantages:

• Distribution channels and customer introductions that would take years to develop independently

• Regulatory navigation expertise that can save months of trial and error

• Supply chain optimization and vendor relationships that improve margins

• International expansion infrastructure that reduces the risks of new market entry

In a challenging market environment, these advantages can be the difference between thriving and merely surviving.

Mapping Your Strategic Investor Landscape

Finding the right strategic partners requires a different approach than traditional fundraising. Here's how to get started:

1. Identify your critical growth constraints. What specifically is holding back your growth beyond capital? Distribution? Technical expertise? Regulatory approval? International expansion?

2. Map potential strategic investors who could directly address these constraints. Look beyond traditional VCs to corporate venture arms, family offices with industry expertise, and even potential acquirers.

3. Begin relationship building 9-12 months before fundraising. Strategic partnerships take time to develop and evaluate – far longer than standard investor relationships.

4. Prepare specific "asks" beyond funding. When meeting potential strategic investors, be explicit about the non-financial value you're seeking – specific introductions, expertise, or resources.

Some of the most successful late-stage companies dedicate as much as 30% of their fundraising process to identifying and cultivating relationships with strategic investors, even if those investors ultimately provide a smaller percentage of the total round.

Balancing Strategic and Financial Investors

While strategic investors are valuable, they come with tradeoffs. They may have different timelines, expectations around information sharing, or potential conflicts of interest.

The most effective cap tables at the late stage often include:

• A lead investor with deep domain expertise and a strong network

• 1-2 strategic investors who directly accelerate specific business objectives

• Financial investors who can support future rounds and provide governance experience

This balanced approach maximizes both the capital and strategic resources available to your company as you scale.

#6: Your Team Is Under More Scrutiny Than Your Metrics

When mid-stage companies approach late-stage investors, they often focus intensely on perfecting their metrics and growth story. But many are surprised to discover that their team—not their numbers—becomes the primary focus of investor scrutiny.

At the late stage, investors are betting as much on your team's ability to scale as they are on your business model.

This shift makes sense when you consider what late-stage companies need to succeed: the ability to transform from a fast-moving startup into a structured, process-driven organization without losing their innovative edge. That transition is fundamentally about people and leadership.

The Executive Team Evaluation

According to data from Andreessen Horowitz, 52% of mid-stage companies replace at least one C-level executive before their late-stage round. This isn't because the early executives weren't talented—it's because scaling a company from $10M to $100M requires fundamentally different skills than growing from $1M to $10M.

Late-stage investors scrutinize several critical areas:

• Financial leadership: A CFO with experience managing complex financial operations and investor relations is increasingly non-negotiable.

• Sales scalability: Can your sales organization grow beyond founder-led or hero-driven deals to a repeatable process?

• Engineering management: Does your technical leadership have experience managing larger teams and addressing technical debt while maintaining velocity?

• Operational maturity: Do you have leaders who've successfully implemented systems and processes that enable scale?

The questions become less about "Can you build a great product?" and more about "Can you build a great company?"

OneLogin: Strategic Team Evolution

Identity management provider OneLogin provides an example of how team evolution can positively impact investor perception and company outcomes.

Prior to their successful acquisition, OneLogin made several key additions to their executive team, including bringing in a CFO with public company experience and a CRO who had scaled multiple sales organizations beyond $100M.

These strategic hires:

• Strengthened their financial operations and reporting

• Implemented more sophisticated sales methodologies

• Improved their board communication and governance

The result was increased investor confidence in their ability to scale operations, which directly contributed to their successful $500M acquisition by Quest Software.

The key insight: OneLogin recognized that the team that got them to $20M ARR wasn't necessarily the same team that would get them to $100M ARR, and they proactively addressed those gaps.

Assessing Your Team's Scaling Readiness

How do you know if your team is ready for late-stage scrutiny? Start with an honest assessment:

1. Who on your executive team has "been there, done that" at scale? Ideally, some key leaders should have experience at companies 2-3x your current size.

2. Do you have defined processes or are you still reliant on heroic efforts? Late-stage companies need systems, not just talented individuals.

3. Where are your obvious gaps? Most companies have clear weak spots in their executive team. Identifying them proactively is far better than having investors point them out.

4. Is your board composition evolving? As you scale, your board needs members with experience governing larger companies.

This assessment isn't about replacing the people who helped build your company. It's about strategically augmenting your team with the experience needed for the next phase of growth.

Strengthening Your Team for Late-Stage Success

If you identify gaps in your leadership team, consider these approaches:

1. Strategic hiring in key positions, particularly finance, sales, and operations. These hires should ideally have experience at companies that successfully navigated your next stage of growth.

2. Executive coaching for founders and early executives to help them scale their skills alongside the company.

3. Addition of experienced advisors who can provide guidance in specific functional areas without the cost of full-time executives.

4. Board evolution to include members with late-stage operating experience who can mentor your leadership team.

The most successful companies address team gaps proactively, rather than reactively in response to investor feedback during due diligence.

Conclusion: Preparing for the Journey Ahead

The path from mid-stage startup to late-stage company has never been more challenging—or more clearly defined. The six factors we've explored represent the new reality of what it takes to secure growth funding in today's market:

1. Investor expectations have shifted from growth at all costs to efficient, sustainable growth.

2. Due diligence has fundamentally changed, becoming deeper, more technical, and more time-consuming.

3. Valuation psychology needs rewiring to align with current market realities and focus on value creation.

4. Debt is no longer a last resort but a strategic tool to optimize your capital structure.

5. Strategic partners have replaced passive capital as investors who bring more than money become essential.

6. Your team is under more scrutiny than your metrics as investors bet on your ability to scale operations.

Companies that recognize and adapt to these shifting expectations have a significant advantage. They raise capital on better terms, with stronger investors, and with less operational disruption than those that cling to outdated fundraising playbooks.

Most importantly, they build more sustainable businesses—companies designed not just to attract the next round of funding, but to thrive regardless of market conditions.

The late-stage funding journey is challenging but also clarifying. It forces founders to build companies with strong fundamentals, efficient operations, and capable leadership—the very qualities that create enduring value regardless of exit timing or strategy.

What has your experience been with late-stage fundraising? Which of these factors presents the biggest challenge for your company? We'd love to hear your thoughts.