A company’s potential for expansion is almost limitless, which inevitably means it will need more capital. To grow from an idea to a multinational corporation, businesses need a growing amount of capital. Although facing many obstacles in their infancy, several firms have already become a leader in their field and are well-known to customers. While financial support is still necessary for the continued success and expansion of such businesses, the landscape has changed.
If you own a firm at this stage, fundraising is no longer necessary for survival. However, its aspirations for expansion need extra funding beyond the initial funding stages. The fourth and final round of fundraising for a business is known as the Series C investment round. It is also the highest degree of venture capital backing that a company may get. This article is all about understanding how Series C funding rounds work, and their benefits while also looking at the largest Series C funding rounds so far.
Series C funding rounds
Series C funding is the last step of a conventional funding round. While some businesses may opt to seek further investment in Series D and E, the majority of startups cease seeking investors after Series C. Series C financing is often used for business development, such as entering new markets, acquiring complementary businesses, or introducing new products and features. The following sections will explain Series C funding in detail.
What is series C funding?
After securing Pre-Seed, Seed rounds, Series A funding, and Series B investment, and with a solid product-market fit established, organizations often seek Series C funding. If your company has made it through these stages of capital raising, not only have you defied the odds, but you can safely say that you are no longer considered an early-stage startup. Moreover, hedge fund managers, private equity organizations, investment banks, and even former venture capitalists make up the majority of series C investors. Increasing their stockholding is the key motivation for reinvesting. Less uncertainty and an already established clientele are two of the primary attractions for significant businesses to join the market. In most cases, the amount raised exceeds that of previous investment rounds by a considerable margin.
How does series C funding work?
Series C funding, like earlier rounds, is predicated on selling preferred shares to investors. There is a good chance that the shares are convertible. They provide its owners with the option to trade in their shares for the company’s common stock at a later period.
Companies that are seeking series C capital are technically no longer startups. These are often mature, profitable businesses that have already achieved widespread recognition. They have a large client base because of the high demand for their primary offerings.
Businesses often look for series C funding to build on their current success and expand into new markets. After raising a Series C funding round, a firm often plans to expand its activities. The funds raised in this manner are often used in expanding into new markets, funding Research and Development, or acquiring potential competitors.
The money involved in series C funding
A Series C funding round, after Seed rounds and a Series A/B round, is a pivotal step in VC financing for a young business. This is usually when a startup has shown itself to be successful and is prepared to expand. On average, a firm will receive $26 million during its Series C fundraising round. With the recent proliferation of “unicorn” businesses, it is conceivable for firms to be valued far more than the typical Series C valuation of $100–$120 million. At this phase in the process, the valuation is based not on aspirations but on cold, concrete data points such as the number of consumers, revenue, and present and projected growth.
Benefits of Series C funding
Series C capital is, as has been shown, more strategic and operational and is often used for things like researching new markets, creating and testing prototypes, and doing market and consumer research. Series C financing is also crucial in the following areas:
- Business Expansion – A business may have access to expansion funding via a Series C round, which is the round’s primary advantage. This may be invested in growing the team, entering new markets, or creating innovative new offerings.
- Access to Better Resources – Having more capital means the business can spend on things like technology and marketing, giving them an edge over its rivals.
- Gain Investors’ Confidence and Trust – A Series C round is advantageous since it inspires confidence in the company’s future success among investors. This is because they can see firsthand the company’s progress and confidence in its ability to achieve its objectives. It will encourage investors to put more money into the firm without worrying about losing everything.
Structure of Series C funding
Funding from Series C is utilized to get a company ready for an IPO, sale, or massive growth. This is the last round of funding for a company, while some organizations may go on to raise money in other ways. While seeking investment capital, a company’s founding and core team must take into account legal compliance and the norms and regulations of the jurisdiction in which the firm is headquartered. The first step is to research the kind of investors who are already supporting new businesses in your field. A term sheet has to be drafted in the next stage. The term sheet is a legally binding agreement between the startup’s owner and the investor.
Before any financial agreement can come to fruition, a contract or mandate must be signed by all involved parties to serve as legal proof in the event of a dispute over the terms of the agreement. This explains why vesting seems to be so crucial; once a right has vested, it cannot be taken away by anybody else. The equity agreement between the company’s original members stipulates that they all get an identical initial stock allocation.
Sources of capital in series C funding
Several investors that participated in the Series A funding and Series B rounds may return for the Series C funding round. It is possible that venture capital firms and business angels, who are often involved in earlier rounds, may turn up to participate in your firm during Series C. Although angel investors and VCs may have dominated earlier funding rounds, a diverse set of participants is expected to join the Series C round.
Hedge Funds are restricted partnerships of investors who take on high-risk tactics, such as borrowing money to invest, in the pursuit of large profits. On the other hand, investment banks welcome customers from all walks of life, including individuals, huge organizations, and even government agencies. During Series C investment rounds, they typically provide consulting services in the form of financial transactions and even help with acquisitions.
For the benefit of its investors, Private equity groups, on the other hand, undertake purchases of firms and attempt to improve their financial performance. With your company’s track record of success, major institutional investors are likely interested in taking advantage of the minimal likelihood of potential bankruptcy.
Difficulties in raising Series C funding
A Series C funding round may be quite helpful for a firm, but it also has its unique challenges. To ensure that this round of investment is worthwhile for all parties, businesses must be ready to face these obstacles and have reasonable expectations for what they can accomplish with this money.
The cost of Series C funding often exceeds that of any preceding rounds. To maximize their profits, investors will want a greater ownership position in the firm and a higher price tag for their shares. This implies that companies will need to be willing to accept lower valuations or give up more stock in exchange for investment.
The loss of control is a key and evident disadvantage of series C financing. Already, the company has traded a significant portion of its shares for funding in earlier rounds. As a consequence, acquiring further capital requires a greater sacrifice of ownership. When owners sell off more of their shares, venture capitalists and other investors have more influence. Because of this, making decisions inside the company is time-consuming and difficult.
Series C funding trends
While market volatility and worldwide unrest are usually deterrents for investors, this was not the case in 2021. In 2022, investors such as Sequoia Capital and Tiger Global were likely to be among the major contenders for the amount of money invested. This trend is expected to continue. As a result of the prolonged war between Russia and Ukraine, it was anticipated that investors may put their money into later stages of fundraising, such as series C and D, rather than the early stages of enterprises’ development. By the time a company reaches this point, it has already gone through four rounds of funding, during which it has lost equity each time. It is for this reason that Series C funding is often the final one before an initial public offering (IPO).
Largest series C funding rounds in history
Series C funding is often used for company expansion and/or market expansion (often by acquisition). In most cases, Series C investors will have a share in the business, either via stock or convertible debt. For your reference, we have compiled a list of the biggest Series C fundraising rounds in history.
|Date/Year of funding
Get ready for your series C funding with Eqvista!
When all the pieces fall into place, including investor enthusiasm, favorable market circumstances, and solid business progress, a Series C capital round may be successfully closed. To attract investors, businesses seeking funding must show they can turn a profit, expand their operations, and set themselves apart from the competition. At Eqvista, we assist businesses, as well as startup ventures, in signing the mandate, raising the required and appropriate amount of financing, and obtaining an accurate market value when the startup firm reaches maturity and makes the decision to go public. If you have queries on our services regarding series C funding, feel free to call us!