When a company embarks on a Series B funding round, it’s an exciting and significant achievement. By this point in time the startup has proven itself, is kicking goals and is about to launch the next exciting stage of their journey.
A Series B funding round is the third step in startup funding, following seed funding and Series A funding. Typically most startups which progress to this stage will do so about 18 months after a Series A funding round.
By now the company will be more established, have a few runs on the board and will have achieved certain goals set out at the Series A stage. These companies will tend to have a good reputation in the market and be well networked with investors and VCs.
Like Series A funding, the company will have reached a stage in their development where they need crucial funds to grow, however their goals will likely be more advanced and more geared towards building on already good foundations to accelerate growth. Often this will relate to scaling up production, improving productivity or reaching more customers.
What are the sources of Series B Funding?
As is the case with Series A funding, the most common source of funding for Series B is venture capital (VC) firms. VC firms represent sophisticated private investors looking to invest in startups in exchange for equity. By investing in a company in the early stages before it grows into a potentially multi-million dollar company, investors can maximise their returns.
At the Series B stage, it’s still early days for the company, but not so early that the company is unproven. Therefore there is less risk for investors. Often investors who invested during the Series A will come onboard again for the Series B.
Another option for companies looking to raise Series B funds is equity crowdfunding which enables a higher volume of investors to purchase a smaller share in the company.
How much Series B Funding can Startups Raise?
Typically Series B funding will average somewhere between $10 million and $40 million. This will depend on how the company is valued and how much it raised during its Series A. Series B investors may pay a higher share price for investing in the company than Series A investors, given there is less risk associated with a company at the Series B stage.
Investors will also get less equity for their investment than at the Series A round because the company will be worth more. Valuations will be higher at this stage and much more accurate given the company will have more data on operations and performance.
How to Calculate how much Series B Funding is required
As is the case with Series A funding, the best place to start when determining how much to raise is to calculate your runway. Runway refers to how many months your business has left before you run out of money. It’s calculated by taking your starting cash balance and dividing it by your net burn rate (the difference between cash in and cash out).
Additionally the costs associated with reaching the growth targets, such as investing in a new factory or sales resources, will of course be factored in as well.
What makes a Company a desirable investment for a Series B Round?
By the time a company reaches the Series B funding round, they will be a lesser risk for investors. By this stage they will be generating revenue, building their assets, proving the business model and hitting milestones. Investors will be able to see actual results around performance and the company will be in a better position to forecast future results.
It’s important that startups conducting a Series B raise can demonstrate financial performance as well as forecasted performance and report on other key metrics like profitability, number of customers, market share and so on.
If you’re looking to source Series B funding in Australia or internationally, Keeping Company can help. We’re experts in this space. We can connect you to the right people to source Series B funding and help you prepare for and guide you through the capital raise process. Contact us today to find out how we can help you with your Series B round.
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For all media enquires please contact Tracy Miller, CMO, Keeping Company 0414 898 452.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.