Series B funding is the next stage of financing the business after Series A. By this time, the company has achieved some stability, processes are working well, and customers are supportive. Revenues are starting to build up, but this may still not be enough to conquer the market.
Series B funding can help the venture increase its market share and improve its scalability. New financing options are accessible, such as new investors who prefer a company that has grown past the shaky startup stage.
Getting to Series B is like getting to Stage 3 of a video game.
Read More about “Series B Funding”
If it takes a village to raise a child, then the same is pretty much true when building a business. Fledgling organizations need to raise capital to prosper and survive, and they do so by engaging investors to put money into their operations. As investments don’t come for free, businesses have to promise something in return, which can come in the form of equity or a sales commission.
At the outset, entrepreneurs may ask for initial investments, also known as “seed funding,” from their networks, such as from family members and friends to get their company off the ground. They may also seek financial assistance from institutional investors and venture capital firms. As the business evolves, owners may need funds to sustain its operations, hence its progression from Series A to B funding.
What Are the Basics of Series B Venture Round?
A Series B financing scheme is the next step of funding to establish a startup company further after it has successfully obtained Series A and seed funding. Often, talks of entering a Series B venture round happens when a company is ready to expand to new markets. The company, in other words, already has a foothold in its niche and a growing user base. It, therefore, needs funding to satisfy burgeoning demand from its customers.
Because the stakes are higher, Series B funding is much harder to obtain than previous rounds of funding. Proposals for seed funding, for instance, have more or less to do with a founder’s vision and other hypotheticals; however, Series B funding would require more accurate data or figures. Investors would often ask for preferred shares in return for their funding. Series B investments could go from US$7 million or more.
How Does Series B Funding Exactly Work?
Investors are usually wary of investing in Series B rounds. As such, Series B venture rounds require more than just proof of revenue. With profit generation as the primary investment objective, seekers of Series B funding should be able to present a concise allocation plan for the funds in their pitch. Among a few requirements for due diligence process are:
- The company’s performance against its sector average
- Project and revenue estimates
- Investment agreements and updated certificate of incorporation
Companies that qualify for this stage of financing see their valuation at a minimum of US$30 million. As you can tell, a company worth this much is not necessarily a small business. According to leading industry articles, the average valuation for enterprises that require Series B financing is around US$58 million.
Who Are the Participants in Series B Financing?
Investors in Series A funding may be willing to participate in Series B, although it is open to new investors, too. Most of the participants are private equity companies and venture capitalists. These participants are typically more interested in latter-stage companies or those that have proven their product concepts and whose cash flows are nearing the breakeven point.
Some of the most famous venture capitalists are Bill Gurley of Benchmark (investments include GrubHub, Uber, and Nextdoor), Jeff Jordan of Andreessen Horowitz (investments include Pinterest, Airbnb, and OfferUp), and Brian Singerman of Founders Fund (investments include Stripe and Oscar Health).
New financing methods are also available in Series B funding. For instance, participants can invest through online crowdfunding platforms, opening the business venture to the general public.