Sapphire Ventures’ Cathy Gao on how VCs can help early-stage startups weather volatility

When we talk about early-stage startups, we tend to focus on the internals — and understandably so. It’s easiest to home in on the things you can control: developing products, building a team, finding the right investors.

All are important and foundational to developing a startup, of course. But as much as we’d like to believe that the right product developed by the right team is enough to ensure a firm’s success, things in this world are never that simple.

When Cathy Gao closed out our Early Stage event last week, she had one big word on her mind: volatility. The Sapphire Ventures partner (who primarily focuses on later stage) has plenty of experience on both sides of the fence. In addition to working as a VC, she currently sits on a number of startup boards, including SafeGraph,, Gem and Medable.

Prior to her time at Sapphire, Gao focused on finance, strategy and product at Gusto during the fintech’s Series B round. We tend to have a short memory when it comes to things like volatility and instability — especially now that we’re well into year two of a pandemic. But Gao is quick to point out that the world was grappling with both before COVID gained a foothold. When she worked at Gusto 2016, there was already plenty of uncertainty.

“Donald Trump was elected president of the United States,” she noted. “Brexit happened, the price of oil plunged, and the world was battling a Zika virus. All in all, 2016 was a very volatile year for the markets. … Because of all the market volatility that year, and a lot of alarmist news headlines internally in the finance team, we were saying, ‘Winter is coming,’ and we got prepared against market volatility. Ultimately, winter never came.”

Market volatility was a regular feature well before the first recorded case of COVID-19, and it’s likely going to be a fixture of our lives long after this pandemic ends. So, if uncertainty is the only true certainty in this global economy, how does an early-stage startup gird itself? There’s no single answer, of course; it’s nearly as complex as the factors that govern the markets themselves, further complicated by the limited resources of a firm that’s just starting out.

Much early-stage startup advice comes down to one principle: Surround yourself with the right people. Certainly, that applies in more ways than one, including whom you choose to bring on as early investors. Approaches vary among VCs, including the level of support offered in helping navigate some of these external forces.

“There are so many different venture capital firms out there … and in the past two years, I’ve seen situations of companies getting a term sheet from someone they’ve just met and making a decision to go with that person and firm in a matter of a week, which is mind-blowing,” Gao said. “How well do you really know that partner and that firm when you make that decision? Not all firms are created equal. Some firms, due to capital constraints or strategy, may not be able to invest in a subsequent round of your company. So that means when things get tough, you’re not going to have a venture partner on your cap table who could put more money into the company, leaving you potentially in a tight spot.

Two important considerations when choosing the venture firm you would like to partner with are runway and support structure. As someone who primarily focuses on hardware and robotics with a side of deep tech, I’m painfully away of the first part. Runways vary dramatically from startup to startup and field to field. Not every company is in a position to commercialize an app overnight.

Long-term support extends beyond this, however. It means finding investment partners that will help a startup weather potential storms even after launch. In Gao’s case, such commitment involves sitting on — or advising — boards, bringing specific expertise to help a startup thrive and grow even amid global uncertainty.

“We strive to provide this entire suite of services,” Gao explained. “Because as VCs, we have the benefit of seeing thousands of companies every year. We have specific insight into what’s working well — what works well for companies that you as an individual founder might not have — and we want to share that wealth of knowledge with our portfolio company.”

But having investors eager to sit on boards can be its own drawback. An investor with too many irons in too many fires runs the risk of spreading itself thin, Gao explained. Suddenly, there aren’t nearly enough hands on deck for a truly hands-on approach.

“If someone is already on 15 other boards, there’s only 24 hours in a day, right?” she said.

Of course, roadblocks aren’t only present at the beginning of a startup journey. Many firms encounter substantial friction well after launch. When that occurs, a difficult — but all too familiar — question emerges: Stay the course or adjust? As far as potential fallacies go, sunk cost is a pretty compelling one. And certainly, the startup world is littered with examples of companies that pivoted in an attempt to catch some new zeitgeist, only to miss the boat entirely.

“It is so hard, even if you are an A-plus team that’s operating at A-plus level of execution, if you are in a market that is facing significant headwind and/or shrinking,” Gao added. “If you’ve already launched your company and you’re already going down a path and something happens that creates those headwinds for your business, you can’t just scrap everything and start over from from zero. But are there ways to slightly pivot [or] expand into adjacent markets that may pick up other potential tailwinds that could bolster your company?”