Hi guys,
Welcome back to After The Cap Raise: KCV’s fortnightly newsletter where we guide founders through the question of not just how to raise capital, but what you need to think about after you’ve raised in order to build a great business.
Last edition, we talked about how to avoid some of the common pitfalls inherent in expanding to the US (having learned some lessons of my own the hard way). Today, we’re coming back touching on my thoughts on the Folklore Ventures x Cut Through Venture State of Startup Funding report which was launched last month.
Firstly, it’s great to have access to this kind of data. For years much of this information wasn’t easily available to founders and others in the startup ecosystem, leaving many flying blind on what was actually happening across the sector. The Cut Through Ventures team do a great job pulling together disparate data and turning it into insights the ecosystem can actually use.
But what does the funding environment look like at the coalface?
I’ve spoken with a lot of founders in the weeks since the report launched, and many feel the optimism reflected in the data doesn’t quite match the reality they’re seeing when raising capital.
So I thought I’d break down a couple of the biggest trends I am seeing at the moment in the capital space. In 2025 alone, KCV clients raised just over $110m in capital, spanning everything from $500k pre-seed rounds, emergency bridge rounds to large $20m+ raises.
We’ve also seen plenty of founders attempt to raise and ultimately fall short.
Investor Insight: The biggest mistake founders make when raising capital
Here are a couple of the themes we’ve seen:
Growth is King
The number one, two and three keys to a successful cap raise are the same: a compelling growth story.
For many of you this may sound obvious - growth has been the key driver of venture capital investment for decades. However, over the past few years the waters have become a little muddied around what investors actually want to see from startups. Post-2021 many founders were encouraged to prioritise profitability and becoming “default alive”, which for many came at the expense of growth. Now those companies are struggling to reignite the growth required to raise more money (more on that below).
It feels like we are now closer to the pre-2021 days of investors valuing high-growth above all else (albeit with more constraints on spending, which is a positive thing).
The difference now though is that the growth expectations are larger and the benchmarks we used to follow have been blown out of the water. A few years ago I often used $1–2m ARR as a rough benchmark for a successful Series A raise. Today that number is closer to $3–5m ARR, with many companies exceeding that and still struggling without the right momentum.
It’s no longer just the number, but also how fast companies can get there.
A two-speed startup economy
While the report shows overall investment increasing, what I’m seeing on the ground is a two-speed startup economy with very different outcomes for founders raising capital.
Startups growing extremely quickly, often in AI-driven markets. There is a lot of capital out there for these companies and I would imagine a lot of the investment growth comes from these types of companies (the report shows 1/5th of investment went into AI startups, which is significant given many of the mega rounds would have been from more traditional SaaS businesses).
Startups who have been around for longer and likely raised rounds pre-2022. While they are still often doing $1-$10m ARR, growth has slowed and they are struggling to raise capital. They are often break-even or slightly profitable, but not profitable enough to be valued on that alone. These are often good businesses, but many are now stuck deciding what comes next.
A lot of the focus publicly right now is on those in the first bucket, but the reality is there is likely a lot more companies sitting in the second bucket. These are the Founders who have been at it for a number of years and are looking seriously at what is next. Many have resigned themselves to the fact that further investment is unlikely without some fundamental changes in the business to spark the growth they need.
Many are also facing issues around prior round valuations. While M&A may seem like an attractive option, previously high valuations combined with preference stacks often mean an M&A outcome may only deliver value to a small group of shareholders
And there’s probably a third bucket of startups which haven’t ever hit the growth expectations mentioned above. While in the past they may have been able to raise a few down rounds or found a tier 2 investor to keep the lights on, that type of funding is now harder to come by. While many KCV clients had successful rounds last year, we also had a lot of conversations about solvency and runway measured in weeks rather than months.
While I expect we’ll continue to see big raise announcements in 2026, we’ll also see a lot more startups shutting up shop or finding exits which many will be disappointed with.
Personally I am pretty optimistic about what is to come and think that we’re getting back to the fundamentals of what makes a strong VC backed business. I am excited for what’s in store, but it won’t be without some pain for many Founders who have worked extremely hard.
If you’re a founder wondering what the next 12–18 months might look like for your company, I’m always happy to have a chat.
Cheers,
Luke Rix
[email protected]