What is Series A, B, C Funding?

What is Series A Funding?

 

After developing the track record of a start-up which means an established user base, consistent revenue figures, or some other key performance indicators, founders can opt for Series A funding. 

 

Series A funding not only helps to optimize the user base and product offerings of a start-up but also enables the scaling of products across different markets. In this round, it’s essential to work on a plan for designing a business model that will generate long-term profit. 

 

When seed start-ups have great disrupting ideas for attracting a huge plethora of customers. Series A funding round helps in directing the company's way forward towards monetizing the business.

 

According to Investopedia, series A rounds raise approximately $2 million to $15 million, but this number has increased on average due to the emergence of high tech industry valuations, or unicorns. Data says that the average Series A funding as of 2020 is $15.6 million.

 

Typically in a Series A funding round, investors indeed are looking for companies that are having great ideas at their disposal. They are also searching for a remarkably strong strategy that has the potential to turn that idea into a successful, money-making business. Owing to this factor, we can see firms going through Series A funding rounds to be valued at up to $23 million.

 

Usually, the investors who get involved in the Series A round are based on traditional venture capital firms. By this stage, it is usual to witness taking part in a more political process somehow. It's common for a few venture capital firms to lead the pack. 

 

In fact, a single investor may serve as an "anchor." After securing a first investor, it became easier for companies to attract additional investors as well. 

 

Angel investors also invest at this stage, but they usually wield much less influence in this funding round compared to the power they had in the seed funding stage. Companies also use equity crowdfunding for generating capital as part of a Series A funding round. 

 

Partially the reason for this lies in the fact that many companies, even those which have successfully generated seed funding, sometimes fail to develop interest among investors as part of a Series A funding effort. In fact, fewer than half of seed-funded companies will go on to raise Series A funds as well.

 

What is Series B Funding? 

 

Series B rounds involve taking businesses to the next level, past the development stage. By expanding market reach to leverage maximum opportunities, investors help startups get there.

 

After going through seed and Series A funding rounds, companies are in that phase when they already possess a substantial customer base and their investors can also believe that they are prepared for scaling their business to reach the next level.  

 

Series B funding is important as it helps the company to grow so that it can meet high levels of demand. Building a winning product and growing a team requires quality talent acquisition. As a result, bulking up on business development, sales, advertising, tech, support, and employees costs a firm a few pennies. 

 

According to Huntclub, the average estimated capital raised in a Series B round is $33 million. Companies undergoing a Series B funding round are well-established, and their valuations are enough to show this too. Most Series B companies have valuations between around $30 million and $60 million, with an average of $58 million.

 

Series B appears similar to Series A in terms of the processes and key players. Series B is often led by many of the same characters as the earlier round, including a key anchor investor that helps to attract other investors. 

 

However, the main difference between Series A and Series B is the addition of a new wave of other venture capital firms that specialize in later-stage investing.

 

(Also check: 6 Levels of Startup Funding One Must Know About)

 

 

What is Series C Funding?

 

Only those companies that have already made it to the pinnacle of success are able to make it to Series C funding sessions. These companies want to search for additional funding to help them develop new products, expand into new markets, or even to acquire other companies. 

 

In Series C rounds, investors inject capital into the meat of successful businesses, so that they would be able to receive more than double that amount back. It goes without saying that Series C funding is focused on scaling the company, growing as successfully as possible.

 

Acquiring another company can be a viable option for scaling a company. In a Series C funding round, the risks involved are too negligible. This is why more and more investors are willing to invest in this round. 

 

Groups such as hedge funds, investment banks, private equity firms, and large secondary market groups accompany the type of investors mentioned above. Primarily this is because the company has already proven itself to possess a successful business model.

 

Thus many new investors expect to invest significant sums of money into companies that are already thriving in order to secure their own position as business leaders. Usually, we can see a company ending its external equity funding with Series C. 

 

However, there are companies that can go on to Series D and even Series E rounds of funding as well. Mostly, companies gaining up to hundreds of millions of dollars in funding through Series C rounds are well prepared to reach a global scale. Many successful companies utilize Series C funding to help boost their valuation in anticipation of an IPO. 

 

This leads to companies enjoying valuations in the area of $118 million most often, although some companies going through Series C funding may have much higher valuations. These evaluations are also founded increasingly on hard data rather than on pinning expectations for future success. (Source)

 

When companies have strong and well-established customer bases, an impressive revenue flow and a powerful trajectory of growth, they should consider themselves ready for heading into the series C funding round.

 

Mostly, only Companies that are in search of a final push before an IPO or, they have not yet been able to achieve the goals they set out to accomplish during Series C funding, continue going ahead with series D funding. 

 

Ending Note 

 

While ending the blog, we can clearly see the distinctions between these prominent rounds of raising capital. These go a long way in helping emerging businesses decipher startup news and evaluate entrepreneurial prospects. 

 

The different rounds of funding operate in essentially a similar basic manner; investors offer cash in return for an equity share in the developing business. Between the rounds, investors do demand slightly different expectations from the start-up. At each funding stage, the risk profiles and maturity levels of companies vary to a great extent, leading to significant variations in company profiles. 

 

The key takeaway point here is that all investors, whether they are involved in the seed round or Series A, B, and C rounds, help emerging start-ups in leveraging the best practices to transform their ideas into a reality. 

 

Series funding helps investors to support entrepreneurs with the proper funds and is an effective way to help them make their dreams come true, perhaps cashing out together down the line in an IPO.

 

(You May Also Read: Venture Capital)