It takes relentless effort and commitment to launch a startup business. And without funding, usually, it is challenging to fulfill the vision for your new venture. When following the traditional path to secure funding, founders need to be prepared for many twists and turns.
In fact, many founders tend to underestimate or overlook the complexity of securing funding. The process is complex but can lead to great rewards. Few startups can afford to endure the wait of a drawn-out loan approval process, so timing is critical. It is better to be proactive than to be desperate and have stagnant cash flow during a crisis.
Despite endless negotiations and a prolonged waiting process, most startups raise appropriate funding at a time of urgency.
What is Series A, B, and C Funding?
Once you move past the seed capital and form a new venture, you will need to consider Series A, B, and C funding. Think of these as stages that you have to go through to garner external funding for your startup.
Technically, Series A, B, and C funding refer to the investor audience that compares returns against risks. You’re probably aware of it, but startup businesses run into most issues at an early stage. So, distinguish between multiple stages to communicate and bring investors on the same page. Founders essentially should learn about various components, processes, requirements, and payout options of series funding.
Whether it’s delays or negative cash flow, you have to cover initial costs to move forward. You can use funds to hire new staff, maintain business growth, or launch a new product. Each stage future-proofs the foundation of your business.
Importance of Series A, B, and C Funding
The immediacy to acquire external funding is essential to building a robust startup. Without consistent funding, you cannot increase or maintain optimal business growth. Once startup businesses complete the initial seed stage, it becomes vital to scale up the operations. So, engage and communicate with potential investors.
Most startup investors also serve as venture capitalists. Fundamentally, a venture capitalist is a seed investor, angel funder, or private investor who offers financial backing to high-risk startups. You have to communicate to the investors about the rendered value in exchange for capital. Fundamentally, investors lend suitable capital in exchange for an equity stake in the startup business.
Today, founders have to grapple in an extremely competitive world of funding. If you’re a new startup and want to expand business operations, you will have to prove “how” and “when” you will achieve desired growth.
How Series A, B, and C Funding Works?
After the pre-seed and seed period, a startup turns to Series A, B, and C funding to increase business growth. But new startups don’t need A, B, or C funding in the early stage and operate with minimal operational costs.
Once a startup takes off, founders may seek the benevolence of potential investors to fund their new venture. Startup founders have to prove the growth of their business to get traction. For instance, if you intend to roll out a product that has a lot of market interest, it may be enough to reach out to investors for the funds.
Once investors see the unique offering can render potential financial return, they will back you up with the required funding -- often after rounds of negotiation. The exchange value of the funding comes in the interest of equity ownership in the startup business for investors.
The more your business grows, the more payoff investors can expect over time. If your startup business gets listed on the stock exchange, gets merged, or acquired, then you can successfully exit. It means your investors will be able to make a huge return. But if the startup fails, you and the investors will wind up with losses.
And that’s one of many reasons startup founders pay close attention to the valuation of the business to ensure success. Valuation factors such as operational capacity, historical track record, and potential are integral to acquire funding.
If you’ve managed to reach Series A funding, it means you’re aware of the key parameters. These parameters include market size, product valuation, robust business model, and required capital. But Series B funding comes down to scaling business operations.
You need more than a workable business model to reach this stage. Once you have a strong diversified user base, you can opt for this funding. When your model works and helps you gain market share, it becomes a sign of maturity. And this is where series C funding enters the picture.
Difference Between Series A, B, and C Funding
Series A Funding
Series A funding revolves around your startup's revenue growth. At this stage, your co-founders and talented managerial staff have to figure out how your products or services will appeal to the targeted market.
Mostly, the Series A funding helps startup businesses conduct extensive market research, pay salaries to the staff, and launch the product or service. The secret to ace this process is to focus on your accumulated market data.
The same market data will help you gain more market visibility and help you align your product or service with market interest. And the revenue growth you generate will serve as evidence that will attract more potential investors. Once you have a customer base and positive revenue growth, it translates into growth.
Capital You Can Raise
On average, founders can raise between $2-15 million in Series A Funding. With more valuation in the tech industry, the average Series A funding continues to increase for startup businesses.
Whether you offer a product or service, the sales numbers are integral to acquiring Series A funding. If your initial startup funding is from a family or friend, your growth may be limited to the amount of funds raised. If you want to move with the tide of the market, you will need to establish new sales and marketing processes. Simultaneously, your startup will need to develop new and reliable revenue channels.
Before you can get Series A funding, develop a thorough understanding of your target market. If you want to be part of a large market, meet many potential investors and demonstrate the anticipated value of the product or service.
Series A funding allows you to take the next big step for your startup business. Once the elements of the growth -- such as product development and initial marketing and branding are in place -- you can conduct startup business operations at the next level.
Most startups get their Series A funding from venture capitalist firms. But angel investors can decide to invest before the the Series A stage. On average, you can expect more than $10 million of investment from Series A funding.
Seek Long-term Growth
The main reason startup businesses often fail at this stage is because they fail to convince potential investors about long-term growth opportunities.
It’s not enough to have a viable concept; you have to convince potential investors that your startup business has the capacity, will, and talent to achieve long-term, sustainable growth.
Total Expected Valuation
On average, you can expect the total valuation of your startup business to be from $10 to $30 million at this point. Typically, this figure depends on your market offerings and market growth rate.
Series B Funding
You can secure Series B funding to hire talented new individuals, increase marketing efforts, and boost business development processes. Remember, Series B funding becomes possible only when you prove your market viability and are ready to expand on growth paths that have shown initial success.
Capital You Can Raise
You may assume that current revenue generation is more than enough to expand, but you have to assume that it might not be enough to keep up with the increased cash outflow. In cases where market dominance and first-to-market matters, you want to double down on growth, which may require a large cash outflow. On average, you can expect to raise$15-$25 million of capital from Series B funding.
Startups that seek Series B funding are already established and want to move to the next round. The valuation of these businesses usually ranges from $30 million to $60 million. If you managed to reach this stage, take a moment and rejoice at the accomplishment.
More Expansion Opportunities
Experienced founders never stop looking for new ways to expand their business efforts. So, if you’re about to embark on new market segments, strategic accounts, more hires, business development, and marketing strategies, then Series B funding can help you attract the attention of untapped customers.
Through Series B funding, you can also have radical expansion by acquiring another business that helps you gain a more competitive edge. On average, if your startup has a valuation between $25 million and $60 million, you can also count on your previous investors to reinvest at this point. However, this range can vary from startup to startup.
Series C Funding
Although it is not “the” last stage, Series C funding serves as the final missing puzzle piece. Once you affirm and reaffirm market growth over a long period to your investors, you can begin to opt for Series C funding. Successfully entering this stage means your investors are convinced that your business will continue to achieve long-term growth.
Radical and Large Expansion
Series C funding caters to startups that want to undergo a large expansion. It involves acquiring one or more businesses and entering a new target market. In terms of expansion, you can decide to launch your product or service in the international market.
This level of expansion requires more consistent and extensive funding. Essentially, you’re trying to build a broader network under the same startup, and you will need all the funding you can get to achieve success.
Established Status and Valuation
On average, you need a valuation of $118 million to enter this stage. But most firms that undergo Series C funding have three or four times higher valuation than $118 million. Nonetheless, once you enter Series C funding, it signifies that you’re here to stay.
Essentially, your business turns into a less risky investment for investors. At this point, you can get offers from hedge funds, banks, private equity firms, and other financial institutions. On average, you can expect to get $50 million to $80 million of Series C funding.
With more opportunities come more challenges. In Series A, B, and C funding, most startups struggle and get mired down in the complicated process. Founders also deal with a lot of pressure to successfully convince potential investors. Taking the startup off the ground is the first step, but making the right funding decisions often overlap.
Bringing investors through additional rounds usually leads to equity dilution for you, other founders, and the core team. However, investors often may push for you to alter your vision for your startup, which can lead to conflicts down the line and inconsistent decisions on the growth paths of the company. With more investment, a startup may struggle to balance long-term growth priorities while showing traction in the short term, which most investors like to ask for.
From Series A to B to C funding stages, you should learn to navigate the process from the start. The stronger the value proposition and the better you can prove this through real customer traction and revenue, the more chances you will have to land substantial funding.
Learning the differences between Series A, B, and C will help you plan better for fundraising milestones and get your metrics and operations in order. Tracking your cash inflows and outflows will help you better manage your cash and help you plan your fundraising in advance.
Learn more with us
- Seed vs series A
- Pareto guide: what a series A company looks like in 2020
- How to find investors for my startup?
- Where and how do you find pre-seed investors for your startup?
- Learn more about fundraising and venture capital
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