Running a business is difficult, especially when discussing finances, capital, cash flow, funding, and others. You might have already made your business known and have sufficient funds to keep it going, but you need more funds to expand it. You can solve this funding dilemma by seeking Series B Funding.
SERIES B FUNDING EXPLAINED
Series B Funding is the 3rd stage of startup financing or the 2nd stage of venture capital financing. This typically occurs sometime after the Series A funding. In this stage, the company will still seek to secure additional funds to support its growth, expand operations, open new markets and further develop its products and services or even add other products/services. It can be noticed that it is similar to Series A funding; what makes Series B funding different is that the company has already demonstrated some level of market traction, generated revenue, and shown potential for significant growth.
HOW IT WORKS
Series B funding is also equity-based financing, or investors provide funds to the company in exchange for shares. What sets it apart from Series A is that the stakes in this stage come with a convertibility option. A Convertibility option, or Convertible Security, is a bond or preferred stock that can be converted into a different type of security where the investor determines whether and when to convert.
The investors in this stage are also usually from venture capital firms, angel and strategic investors, and even the investors from the Series A funding may offer additional funding.
This stage occurs after the company has started generating revenue from sales. Afterwards, investors will see that the company’s valuation is higher; only then will they invest. Investors during this stage usually acquire share prices higher than Series A investors since there are fewer risks involved with this kind of funding.
KEY OBJECTIVES OF SERIES B FUNDING
As a company that is getting ready to enter the developmental stage and move on from being a startup, the key objective of its funding is to grow the company to a larger scale. Here are some common goals of Series B Funding:
For the company to grow and have a solid foundation in the market, series B funding enables a company to be able to research and redevelop products or services for further enhancements. It also allows the company to develop new products/ services.
- Market Expansion
It allows the company to reach new geographic regions or customer segments. It may involve investing in marketing and sales strategies, establishing a more substantial market presence, or entering new territories to capture additional customers.
- Scale Company operations
The funding can help to invest in sales and marketing efforts and hire and build competent teams and personnel. Even help in acquiring materials, equipment and other things to ramp up production.
Since the company has already proven its marketability, the funding can help establish it as worthy of partnerships and investment. The financing can open the possibility of further funding and building connections with veterans in the industry.
In business, investors have their own sets of expectations when providing financing to startup companies. Here are some of what you might want to know:
- Growth and Scalability
Investors want to see that your company has achieved market traction and the potential for growth and improvement.
- Market Leadership
Your company must have its edge and advantage over similar businesses to show the potential of being a leader in the market.
- Strong Team and Talent acquisition
Your company must attract and retain top talents, as this will determine the management skills of the personnel and owners. Team management can make or break a startup company.
ROI, or Return on Investment, is the most critical expectation in Series B funding. Investors expect their investment to generate a significant return, typically with an eye toward the subsequent funding rounds or an eventual exit.
SIGNIFICANCE OF SERIES B FUNDING IN THE STARTUP LIFECYCLE
As a later-stage round of financing, Series B funding ensures that the company continues accelerating the growth and expansion of the company’s market presence. It propels the company to the next level of growth, solidifies its market position, supports product development and innovation, attracts talent, and sets the foundation for future funding and strategic opportunities. Without this kind of funding, a company will remain stagnant and unable to grow into companies that can compete internationally.
SERIES B FUNDING VS SEED AND SERIES A
|Stage of the Company||Series B Funding occurs at the 3rd stage of company funding when the company has already started to gain revenue, unlike Seed and Series A Funding. The company is still at the first and second funding stages in Seed and Series A. It has not achieved market traction, and products or services are not finalised.|
|Funding Amount||The capital during the seed and series A is generally smaller in scale. It ranges from a few thousand dollars up to tens of millions. However, series B funding involves tens to hundreds of millions of dollars depending on the company’s valuation.|
|Investor Expectations||During the first two stages of funding (Seed and Series A), investors typically focus on the potential and capability of the company to gain and achieve certain milestones. They are expecting higher risks but with higher returns as well. But for Series B, investors expect that the company has already started to gain a foothold in the industry, and they would usually look for evidence of scalability, revenue generation and a clear path to profitability. This way, they ensure their risk is lower but at a higher price.|
|Company Maturity||Series B funding focuses on enhancements, expansions and revenue growth as it transitions to a developmental stage in the business. Similar to Series A funding, the main goal of Series A is to take the company to a more extensive area and increase customers. The seed focuses only on building the initial team and validating the products and services’ marketability.|
Seed and Series A funding are earlier-stage funding rounds focusing on market validation and scaling the business. In contrast, Series B funding is a later-stage round to accelerate growth and expand the company’s market presence.
Series B funding is crucial for a startup company’s growth into a successful global company. It provides enough capital to improve the company in several aspects that helps ensure success. You, as an entrepreneur, must capitalize on these funds to upgrade the level of your business.