Series B Funding – A Complete Guide
Series B funding round is all about moving companies beyond the development stage.
The process of starting a company is not an easy one. Marketing, branding, product or service design, and other everyday activities are necessitated by a lack of financial resources. The majority of business startups look for investors who can provide them with startup fundraising to enable them to carry out the numerous activities necessary to establish and develop their organization.
Series B Funding
Series B funding round is all about moving companies beyond the development stage. Companies that have completed seed and Series A investment rounds previously demonstrate to investors that they are ready for larger-scale success. The Series B funds are most commonly used to help the company expand to meet these high demand levels.
Overview on series B funding
Series B funding round is the second round of funding for a company, and it is provided by investors such as private equity firms and venture capital firms. The beautiful thing about Series B investment is that firms can seek the same resources they employed in the previous round of the funding process. The advantage of this stage is that businesses participating in this funding stage are already acquainted with the process and have a broad understanding of how investors operate.
How does series B funding work?
The Series B round of financing is often initiated once a firm has achieved specific milestones in its business development and has progressed beyond the early startup stage. When business owners come prepared for the Series B round of fundraising, the new investors and those from the previous stage review the business specifications and continue to invest respectively.
Who provides series B funding?
The primary stakeholders in series B funding are usually the same as those in series A financing. Some of the investors who participated in the previous investment rounds could also raise their share in the organization. At the same time, new investors can also start bringing their money into the fundraising round. The majority of the time, these investors are venture capital firms that specialize in investing in later-stage enterprises, as well as certain private equity corporations. The general public can also participate in series B fundraising, for example, via equity crowdfunding platforms.
Industries that mostly receive Series B funding
Now that we know how the Series B funding stage works, the most common and famous business industries that qualify for the Series B funding round are given below. Whether it’s because of the long term profits or higher chances of growth, you’ll find out in the pointers explained below:
The robotics industry is ever-growing and is highly likely to generate good returns. This is primarily due to the investors’ positive beliefs, which are reinforced by technological advances that happen every year.
AI and automation have further helped to bring down production costs. Despite that, this industry is in constant need of funding due to the high-tech equipment needed, and Series B funding channels help it to do just that.
Currently, all the manual processes and supply chains are being converted into automated ones which then lowers the margin of error and labor costs. Industrialization on such a heavy scale has led to a hike in investment volumes in this industry over the past few years.
Healthcare is another evergreen industry that was thought to be sufficiently funded by government-regulated trusts. Even though this may be true to some extent, various private institutions constantly need funding.
This has especially been significant post the epidemic where the number of healthcare supplements needed toppling to an all-time high. The Healthcare industry also benefits from these investments by repaying back to the trustees in terms of healthcare allowances.
Chip shortages lead to a lack of supply and delayed deliveries all over the world. Due to a lack of physical labor and engineers, the technology industry has been severely affected. Proper investment in tech-oriented startups helps production houses meet their goals on time.
Even though this decline in deliveries is a temporary issue, given the rapidly expanding nature of this industry, investments are always needed constantly.
Why is Series B Important for Business?
In the same way that growth and development are important to the success of any business, Series B funding is important to the growth and development of many different aspects of the company. The following are the several ways in which Series B investment has shown to be beneficial for businesses:
- Business Expansion – As a business owner, your primary goal in obtaining cash is to expand and develop your company over a period of many years. Raw materials, infrastructure, facility growth, marketing & promotion, and other aspects of the company’s capabilities must be increased using financial resources.
- Asset Purchasing – In any company, assets serve as the building blocks of the enterprise. It can be in the form of money, equipment, land, or a building, among other things. The raising of funds aids in the simplification of the asset acquisition process.
- Process of work made easy and quick – Raising funds is important because it allows for the provision of working capital, which is required in the day-to-day operation of the business and helps to expedite the work and increase productivity. Salaries to staff, expenses for managing warehouses and storage facilities, expenditures for the manufacture and manufacturing of items, transportation, and other expenses are examples of other expenditures.
- Reconstruction of Debts – At some point in the course of a company’s existence, financial difficulties will arise. In these types of circumstances, debt restructuring is what comes to the rescue. Essentially, it minimizes and reconstructs the amount of debt owed and relieves an entrepreneur of an excessive amount of stress.
Why is it difficult to get series B funding?
The most difficult aspect of obtaining Series B funding can be attributed to the nature of the business’s life cycle itself. Given that your firm has progressed to this point, investors would be interested in seeing how earlier assumptions have shown themselves in reality.
How to Raise Series B Funding?
Once the business is ready for Series B funding, the raising process comes in, which involves various different aspects to be taken care of. Read below the various things to keep in mind while you raise your Series B funding:
- Create a competitive environment for investors – It is important for you to make certain that you have access to the most qualified investors at every step of the fundraising process. This implies that businesses should strive to create a competitive atmosphere and be accessible to investors from a variety of backgrounds who can provide not just finance but also useful insight into their organization. Along with this, it’s critical to begin cultivating connections with new investors as soon as possible before you’re ready to raise your Series B round of funding. Meetings with possible investors should be scheduled many months in advance, as this will make the whole process much more efficient.
- Find balance – Late-stage investors are often attracted to Series B investments. This appeal only makes sense since more campaigns or an initial public offering (IPO) are expected to follow in the years to come, ideally resulting in profit for all participants. It is frequently preferable for venture capitalists to get involved early in the process. A Series B funding round provides a fantastic chance to establish new ties with investors while also nurturing existing partnerships that have been in place for some time. To maintain fairness to existing investors while also attracting new ones is a delicate balancing act.
- Build networks and relationships – When a Series A round goes very well, many entrepreneurs allow their relationships with investors to get stale. That is to say; they cease to make an attempt to keep them informed, in the loop, or even just on their radar screen. Investors, without a doubt, want you to achieve all of your goals. The majority of the time, though, they also want to have frequent conversations with you regarding the collaboration. Maintain communication with your original investors, whether it’s via a visit to their workplace, a monthly afternoon coffee, or a video conversation. Individuals who had a key role in the formation of your company are likely to want to stay active participants in it, regardless of how well it is doing. Maintaining your professional connections with respect and appreciation should be a priority.
- Keen to get opportunities – It is not simply the first encounter that leaves a lasting impact in business; every meeting does the same. The manner in which you portray yourself in talks with investors, whether they are old or new, sets the tone for every subsequent contact. The bottom line is to see meetings as opportunities rather than as tasks to be completed and crossed off your to-do list.
- Financial and projection – Before investing in high-growth firms in the second round of investment, investors want to know that they have achieved a number of key milestones. Instead of focusing on established measurements and parameters around revenue or key performance indicators (KPIs), many investors at this point choose to dig deeper into a company’s inner workings.
- Commercialization progress – During a Series B round, investors aim to minimize their exposure to market risk. At this stage in the game, companies carve out a solid niche for their goods and services in order to succeed. It is important for your management team to have a thorough grasp of the market and know how to disrupt it in order to succeed. The advancement of commercialization is inherently insecure without this knowledge and expertise.
- Growth and ability to grow – A company’s financial situation needs to allow it to expand. It is not simply the team and their proven growth strategies that are important; money is also important. Perhaps your team has all of the necessary expertise to disrupt the industry, but are your financials in a position to do so? Or, to put it another way, how effective is your capacity to grow profitability? As previously said, going from 100 consumers to 1,000 customers is a significant increase. It should be obvious before the investment round that you have the potential to grow to 1,000 consumers based on how you first managed the first 100 clients. The purpose of Series B is to broaden the base of support, laying the groundwork for future rapid and upward development.
- Prepare attractive pitch – You should be able to communicate how your product or service will perform well in a larger market in your pitch. Make use of narrative elements to sell your pitch and explain the tale of your company. An effective story weaves together data and facts to offer a picture of a wide range of long-term possibilities. A good approach is to practice your Series B pitch with people who are not involved in the sector. If you are successful in communicating your idea to them, they are likely to “get it”.
- Prepare financials and management team – There are many moving factors in a Series B deal, so it’s critical to select and choose the information you really need to provide to the investors. In most cases, investors will not be impressed by a big white wall of data presented to them. Instead, provide VCs with precise facts and statistics that you use to monitor your company’s progress. The majority of investors want to demonstrate that you have a firm knowledge of your unit economics before investing their money. Of course, displaying your company’s benchmark will save prospective investors the time and effort of doing so themselves. For example, you may provide them with your growth statistics, sales proficiency, client retention, and burn rate statistics. This information firmly implies that your organization has completed its task and has a clear route to more hard work ahead of it.
Challenges of Raising Series B
Some firms in Series B may have desirable levels for a subset of essential KPIs. These companies may have achieved a certain level of client success but may also have experienced churn. They have matured too much for a simple “dream sale” but not enough for a “raise on the metrics” approach. Series B rounds are notoriously difficult to raise because they are midway between Series A and Series C. Series B funding represents a maturing startup’s transition into awkward adolescent years. Here are a few challenges that you may face while raising series B funds.
- Demonstrating traction – Startups seeking Series B investment must demonstrate strong user and customer traction. This requires proof of a stable customer base and rapid expansion. Furthermore, they must show they are making money using a sustainable business plan. Startups seeking Series B funding should highlight their traction in their investor presentations. They should showcase not just income but also subscriber growth and engagement data. In addition, they need to communicate their long-term goals and strategies for expanding their firm.
- Achieving profitability – One reason it’s so challenging for entrepreneurs to get Series B financing is that investors’ focus has shifted from the goal and the personnel to the profits the company has been generating. Something like this may be quite an unpleasant awakening for a firm that has not traditionally been highly data-driven. To attract a B round of funding, businesses that have already raised Series A rounds can begin planning for metrics by outlining milestones they want to achieve with the additional funds.
- Scaling the business – Most investors will only put money into established, proven firms with the potential to expand. Your company plan has to demonstrate that it can generate income with low costs in the upcoming months and years. A more significant profit margin and less investment in infrastructure and marketing are hallmarks of scalable company concepts. The company’s expansion strategy must maintain its original mission and products. If your company’s business plan is likely to result in an excessive expenditure of time, money, or resources, potential investors will be cautious about accepting you.
- Managing dilution – The value of a shareholder’s investment and the investor’s ownership stake in a firm both decrease if the company issues more shares of stock. Investors should examine the dilution process and its potential effects on their share value since it is a risk they must consider as shareholders. Dilution is not seen in a positive light by many current shareholders. After all, the more shareholders there are, the less control any individual shareholder has over the business. And it can make investors worry that their stake is losing value. So it can be challenging for the founders to manage dilution while raising further funds for the business.
- Maintaining company culture and values – After securing a Series B investment, keeping the company’s culture and ideals intact might take time. After all, the substantial sum you’ve just received will allow you to take your business to the next level. Yet there are higher expectations and more pressure to provide results with this additional investment. It’s challenging to keep up the enthusiasm and drive you initially felt. In the fast-paced world of startups, keeping up might seem impossible. Nevertheless, if you want to continue to expand your firm and keep your investors pleased, you must find a strategy to manage the value you have been building.
FAQs on Series B Funding
Still not sure about Series B Funding? We have answered the frequently asked questions by new business founders on Series B Funding to give you more insights on this funding round.
When should startups raise Series B funding?
Businesses that are prepared to grow may benefit from Series B funding. Typically, the Series occurs when the firm has established a solid foundation for its operations and moved beyond the early stages of formation. These businesses have consistent income streams and make a profit.
How is Series B different from Series A funding?
Businesses that have received Series A investment have already established solid user bases and convinced investors they are ready to grow. On the other hand, a Series B round of fundraising helps a firm to expand its operations and better serve its growing customer base.
How do investors decide how much to invest in a Series B round?
Series B investors will look for evidence that a company has filled important positions, such as those in the C-suite and sales leadership. To determine how much money they can put in, they need to observe individuals in those positions who have already achieved success in their respective fields.
What are the most common mistakes startups make with Series B funding?
Some common errors businesses make during a series B investment round include acquiring insufficient money, surrendering a great deal of the company, needing a strategy for scaling, and fundraising too early.
What are the next steps after successfully raising Series B?
If you’ve already acquired Series B money, you may go on to planning for future fundraising rounds. Series C and D are the most prevalent. The purpose of Series C fundraising is to help your company expand. At this stage, you should be concerned with developing your business and penetrating current markets.
Why are investors not often interested in series B funding?
Investors often avoid series B rounds due to their high risk. As a result, more than simply evidence of income is required for a Series B venture investment. Applicants seeking Series B fundraising should be able to give a coherent allocation strategy for the money in their presentation, with profit growth as the main investment aim.
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