A Series B funding round is the second round of funding a business. It follows a Series A and precedes a Series C funding round. The money raised in a Series B funding round comes mostly from venture capitalists and private equity investors. It follows the achievement of major milestones.
How Does Series B Funding Work?
A Series B company tends to have a valuation between $30 million and $60 million and has an established business to back up its capital needs. The funding often includes investors from previous round, like Series A. The round is led by a key investor banging the proverbial drum for the company to draw in other investors. However, in contrast to a Series A, a Series B also attracts new venture capitalists that specialize in funding later-stage companies.
What’s the Difference Between Series A and Series B Funding?
A Series A company develops a unique product or service. Its product-market fit has been validated, and the company is in its growth stage and focuses on marketing and advertising. Investors in a Series A look for a startup with a strategic growth plan. These are typically early-stage venture capital or private equity firms helping the company to acquire inventory and staff.
On the other hand, a Series B company already has a significant user base and focuses on growing its business through additional capital, sales, business development and customer service. Consequently, Series B investors is focused on helping the company to scale its established business.
Series B investors pay a higher share price for the equity they acquire since the later stage the company is at translates into a lower risk of ruin. If a company raises a Series B through equity, investors may prefer convertible preferred stock over common stock in order to prevent the dilution of their shares.
Alternatively, a Series B can be raised through fundraising from private equity investors, venture capitalists or credit investments. A company can also turn to crowdfunding from the general public.
Why Is It Difficult to Get Series B Funding?
The company's business life cycle can be a challenging aspect of this funding round. Investors will check how previous assumptions have held up to real-world scrutiny and assess investment viability accordingly. They may also ask for sources of revenue or a revenue plan that indicates the company is generating or planning to generate profits.