Stepping beyond the early stages of startup funding marks a pivotal juncture – the transition from pre-seed to series A which is the start and the end of two investment processes. Yet, the journey doesn’t end there; it’s a continuous process through the time your business expands.
Launching a startup’s not a picnic; little funds and resources can result in compromises in branding, advertising, product or service development, etc. This prompts many budding enterprises to turn to investors to initiate and complete the many steps required to launch and grow their businesses.
As you inch closer to your aspirations, a grasp of Series B funding becomes vital. So, in this post, we will be showing you what Series B funding is and how you can go about it to secure enough funding for your startup.
What’s Series B Funding?
Series B funding is like a boost for companies. It comes after they’ve done the starting steps (seed and Series A funding) and want to move ahead from just creating a product. By getting this kind of funding, companies show they’re ready for bigger success. The money from Series B is used to help the company grow more because there’s lots of demand for what they’re offering.
In this round, private equity firms and venture capital firms are the ones who give money to the company. This is the second time the company is getting funding like this. The cool thing is that they can ask the same investors who supported them before.
The benefit of this stage is that businesses participating in this funding stage are already familiar with the process and have a comprehensive understanding of how investors function. This is an advantage over later stages.
How Does Series B Funding Work and Who Provides it?
When a company has reached certain milestones in its business development process and has moved past the early stage of its startup creation, it will often begin raising capital through the Series B round.
When startup owners are ready to begin the Series B fundraising process, new investors and investors who participated in earlier stages of the company’s development assess the company’s parameters and decide whether or not to continue investing.
The major stakeholders in a series B funding round are typically the same as those in a series A funding round. Some investors who took part in the earlier investment rounds might increase their stake in the company at some point in the future.
At the same time, additional investors may begin contributing their funds to the fundraising round. Most of the time, these investors are venture capital organizations geared explicitly toward investing in later-stage businesses. Certain private equity corporations may also be included in this category.
The general public can also participate in fundraising efforts, such as those for series B, using platforms that facilitate equity crowdfunding.
How Do Potential Investors Choose the Amount of Money to Put Into A Series B Round?
Investors aren’t just throwing money blindly into a Series B round. They have a method to figure out how much to invest. Here’s how they do it:
- Company Growth: Investors look at how much the company has grown since the last funding round. If the company is doing well and has shown progress, they might invest more.
- Future Plans: They want to know what the company plans to do with the money. If the plans are exciting and promising, investors might be more willing to invest a larger amount.
- Market Potential: Investors think about the market the company is in. If it’s a growing and profitable market, they might be more generous with their investment.
- Competitive Edge: They check if the company has something special that makes it better than others. This could be a unique product, a strong team, or a great reputation.
- Financial Health: Investors also consider the company’s financial health. If the company is managing its money well and has a clear financial strategy, it’s more likely to get a bigger investment.
- Risk and Return: It’s a balance between risk and potential return. Investors weigh how much they’re risking against how much they could gain.
- Previous Performance: If the company did well with earlier funding, it builds trust. Investors might put in more money because they believe in the company’s ability to succeed.
Closing the Funding Round: Steps to Go About That
After a careful evaluation of everything and successfully gaining the investments that you have been targeting for your startup, it is finally time to close this chapter and move on to the next level. Let’s look at some tips to formally close an important funding round.
#1: Make a Checklist
Remember that personal project to-do list you created? Do it again, but this time for the purpose of closing a funding round. A closing checklist assists you in focusing on the critical action items required to secure that investment.
In addition, after investigating the deal and meeting with the stakeholders, include or omit tasks. Once you’ve completed this list, put it to a task management monitor or your desk.
#2: Provide a variety of possibilities
Because each investor’s aims and motivations are unique, a take-it-or-leave-it approach will almost never succeed. As a result, it’s critical to be adaptable, especially when dealing with non-institutional or investor clients.
Remember that raising financing with a family member has different parameters than raising funds with a venture capital business. Convertible debt is superior to preferred shares for family and friends when obtaining funds through equity. However, be creative with the amount of investment to give them a few alternatives.
#3: You may need to pay for a third-party network
Another issue to take into account is whether it is worthwhile to hire someone to assist you in finding investors. Most investors nowadays are an angel network. This is because this company already sorts through opportunities, making the appropriate investment option easy.
So, if you want to gain access for greater investors, paying a third party is an excellent option. There are numerous possibilities, so do your research before engaging anyone for what they offer.
#4: Hire attorneys
Choose a law firm that specializes in startup funding. Check their credentials and ask for referrals from people you know. Though big-name law firms appear to be a safe bet, they may not completely comprehend how smaller businesses operate.
Furthermore, law offices that justify their expensive rates might make the procedure painful and prolong the transaction. Funding rounds are becoming easier and less expensive to carry out.
#5: Make plans for a follow-up meeting
Wrap each meeting with a game plan for the following session to guarantee that the relationship you have with investors grows. It’s preferable to divide it across two to three meetings to allow investors ample time to adjust.
At the following session, you can be direct and tell them if they have any remaining questions or concerns about closing the investment. Their reaction will determine whether you are capable of handling these problems.
#6: Prepare a backup plan
Developing a backup plan does not imply unconditional recognition of a potential failure. It offers you confidence that you’re prepared for any scenario, and investors will notice.
Plan B could include a succession of modest rounds of fundraising funded by current shareholders, as well as measures to reduce expenses to ensure that your firm can operate for some time without a financial infusion.
#7: Make a deadline
At any stage of startup fundraising, time is also of the essence. So, take command and keep everyone focused on the deadline. Everybody should be knowledgeable on the aim and the particular deadline the moment the documents are sent.
Follow up on the investment round on a frequent basis to check how things are going. Be open and honest with stakeholders about what needs to be done. Set up a meeting with you, the investors, and the lawyers if there is an interruption in processing the documents.
#8: The closing round
When the documents are nearly finished, determine how the final documents should be finalized and money transmitted. In essence, the closing date is normally seven days after all documents have been completed.
Set up many meetings with investors during this time to confirm whether they are ready to sign the paperwork and send the monies. Remain involved along the process to ensure that everything runs smoothly and efficiently.
If Series B Funding is Completed, What Comes Next?
If you already have money from Series B, you can go on to planning for future fundraising rounds and proceed with your business. The most common ones are parts from Series C and D.
The Series C fundraising campaign aims to contribute to expanding your firm. At this point, the most important things for you to focus on are developing your company and breaking into existing markets.
What Are Some Reasons Investors Are Not Usually Interested In Series B Funding?
Investors often stay away from Series B funding because it’s risky. So, Series B rounds might not catch their attention.
When it comes to Series B, investors need more than just proof of income from the company. They want to see a clear plan for how the money will be used.
People asking for Series B money should have a solid plan for where the funds will go. The main goal should be to make more money in the end.
If you want this process to be successful with your startup, you might need to scroll up to see some of the things investors consider when choosing the amount of money to put in a Series B funding. That will help you position yourself for the best results too.
Final Thoughts
The Series B financing round is the third and final phase of equity funding for new businesses. When looking for Series B capital, most entrepreneurs already have a solid foundation, dependable cash flows, and a product that can compete in their industry.
Compared to Series A financing, investments made in a Series B round often carry a lower level of risk. We have explained all you need to know about this process and how to make the most out of it. If you have just finished your Series A funding, then you should leverage the tips here to get the most out of Series B funding.
