Series B Funding: A Complete Overview
Last Updated: 1/1/2022
Series B funding round is the second stage of financing a business through various investors, such as private equity investors, crowded funded equity, credit investments, and venture capital firms.
Progressive rounds of funding a business are sequentially named (Seed Funding), Series A, Series B, and Series C funding round. For the most part, the Series B Round happens when the organization has achieved specific milestones in building up its business and is past the underlying startup stage.
In this article, you will get in-depth information on Series A funding versus Series B funding, standard metrics, Series B valuation, preparing for the Series B Round, and structuring the Series B Round.
Series A versus Series B Funding Round
Comparison between series A and series B funding round
Series A Funding Round
The Series A funding round permits organizations to collect more cash from venture capital or private equity to take the business to the next level. Series A investors are usually traditional funding firms, such as Sequoia and Accel, or private equity in some cases.
Angel investors can likewise participate in Series A rounds, but they don’t have any capacity to set pricing for goods or services. Under this funding, the venture firms usually set pricing and deal structures. Series A rounds usually yield investment sums going from $2 million to $15 million.
Series A venture capital or private equity funding helps a company implement or modify its business plan based on the newly defined business goals. The company utilizes the funds to optimize its distribution and open new markets for its products.
Series B Funding Round
At this stage, the organization is on its way to being an established business, production is well controlled, sales are at optimal levels, and clients are effectively buying the product.
Scalability is the primary focus of this round. These venture capital rounds are typically financed by venture capital firms specializing in later-stage investments. The amount of money raised during a Series B round can go from $10–20 million.
Series B funding is a form of venture funding that helps a company to expand its team, achieve national and global expansion, acquire other business entities, and scale customer base.
Common Metrics
Data-driven structures occupy a significant spot for venture capital the Series B funding aspect in any potential startup. Metrics give a visual and analytical overview of the rate of the processes involved in a company.
With an accurate and reliable type of metric data, venture capital can view, analyze, and scrutinize the derived data quality to make effective decisions. Informed decision-making is accomplished by using data analytic tools that help track the return on your investments.
Some of the standard metrics involved in seed B funding include:
Revenue
Series B venture capital entails a higher revenue amount because the invested money usually is higher than earlier seed capital or Series A rounds.
With proactive and effective financial management terms, the rate of revenue term sets to elevate wholesome company benefits.
When handled appropriately, the positively contributed venture capital financing generates more revenue that enriches its company’s financial status.
Performance
The Series B funding phase is a second phase after the series A funding. It comes with good experience in dealing with larger investors, company operations, better business strategies, good revenue management, and generally better company performance.
The company is preferably in an evolving stage where general operations experience good skills, techniques, and improved viable methodologies that enact growth.
Risk Management
Risks are always constant at almost all levels in our various business operations. When the business is in a much healthier phase than its initial stages during Series B , investors should experience a lower rate of risks since they can predict the company value through any existing data.
Investors can study and analyze business reports, and any respective data sets vital to sound decision-making.
Series B Valuation
Usually, startups or businesses capital raising for Round B venture capital financing have a higher valuation than a series A funding scenario. Depending on the industry you are in, Series B ranges from $10 Million to $20 Million, larger sums by older companies may begin to attract private equity.
The valuing is a bit higher since this stage develops most startups, and business owners can prove their legitimacy once they approach the investors.
Investors tend to pay more at this stage because companies are already in growth stages. Most of them need the funds for improvement in the various sectors, including research and development, sales and marketing, and product design divisions.
Series B valuations are done based on the company's performance in the industry, its revenue forecast amounts, and the company assets such as intellectual property.
Have questions about business planning or the capital raising process? Contact our experts at Pro Business Plans by scheduling a free consultation.
Preparing for Series B Round
Getting Series B Round can be challenging if you are unprepared to convince the investors that you deserve funding. It would help if you had some clarity when preparing your company or startups for a Series B round.
To raise capital, you need to effectively touch on its multiple aspects, spanning from its growth, sales, and market competition.
Before approaching the investors, it is vital to prepare a business model and a straightforward pitch. It would be best to give out a product pitch that elaborates on its performance, mentioning how it will outsmart its competitors. You can also articulate the product’s future expectations to enhance the investors’ confidence in you.
Moreover, you can practice your honing pitch to other individuals and companies who have gone through the series B round. They can provide you with solid pieces of advice from their experience. Besides that, you can also rely on various online materials.
Metrics are vital components. You can present a clear data room to the investors that brings out all the metrics utilized when tracking the business. There is no need to pinpoint all the metrics. You can mention a few to save the investors’ time.
The data room should mirror all the essential company’s performance; growth, sales efficiency, and customer retention rates. You may also include other metrics like the operation costs for productivity, salary pay for the senior leads, and quota rates. It would create a good impression of the company’s significant efforts to study the market.
Structuring Series B Round
The typical investors involved in a Series B round financing are venture firms, private equities, institutional investors, and equities from crowdfunding. In some cases, investors from earlier rounds like seed funding may also participate. It would be best to approach venture capitalists from diverse backgrounds and locations, to know the necessary detail the investors are considering most.
A lead investor from earlier company stages (E.g. seed funding, Series A) can also assist in bringing more new investors into the Series B round. Most of the investors prefer receiving preferred stock that is convertible, as compared to common stock. Not all early investor investors will participate in later rounds, these are often initiated by new investors because these funds focus on companies at specific stages.
The reasoning behind preferred stock is its anti-dilution property not typical of common stock. It protects the equity investors have from becoming less valuable. Also, the stockholders get to receive dividends earlier.
Commonly Asked Questions
Conclusion
Series B essentially exists to assist your company in scaling up and managing teams. Even though funds from a Series B round are higher than that coming from Series A and more so from seed funding, it might need a ton of preparation and overall efforts to impress the investors and meet their specific investment constraints.
Series B funds help a company to expand its team, acquire other business entities, and expand its business. It is crucial to employ some vital metrics when establishing your data room and pitch, emphasizing investor clarity.
There are also multiple sources you can look out for your Series B. The funds are extra useful in stabilizing the operations and enabling the growth of the company since your Seed Funding and/or Series A rounds.
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