By the time that you’re considering a Series B fundraise, you’re no stranger to the world of venture capital and the intensive process of raising investor dollars. However, pursuing an additional round isn’t a requirement; in fact, only about a quarter of seed-funded companies go on to raise a Series B.
Your Series A round likely helped your company capitalize on its traction and scale your efforts to your primary market. Series B, then, is all about adding fuel to the fire of your maturing company with the intention of dramatically accelerating revenue growth. For context, the pre-money valuation of companies raising a Series B averaged $58 million in 2019. The median round size was $26 million.
Investors often consider Series B as one of the trickier rounds to raise. That’s because your leadership team really needs to demonstrate that they’ve delivered on the Series A opportunities, become a market leader, and importantly, that there’s the potential for a significant amount of additional growth.
If you’re part of a later-stage startup contemplating additional funding, ask these questions to determine if a Series B makes sense for you.
What is your opportunity and how will the money help?
- This is obviously the question to ask before any fundraising round; however, the answers become especially important as you pursue a Series B.
- At this point, investor expectations are changing. Whereas in previous rounds your company was proving first an idea and then validating product-market fit, Series B investors anticipate that your team has nailed the latter.
- Now investors expect that additional funding will be used to fill key gaps in your workforce and pursue additional lines of revenue.
- If you need funding to extend runway after a pivot or continue to find product-market fit for your product, Series B investors may not be as keen.
What have you proved with your Series A?
- While seed funding often comes with the expectation that products, markets, and even teams will evolve as the company grows and learns, venture capital is connected to more tangible results.
- Series B investors will want to see what you did with your Series A funds —and understand the impacts of those accomplishments.
- To that end, ensuring you establish and then hit the metrics that Series B investors are looking for is essential. For example, for B2B SaaS companies these include ARR, year-over-year revenue growth, customer retention and acquisition metrics.
- If you haven’t experienced significant growth in these areas, you may struggle to convince a Series B investor that your company is ready for the next level. A bridge round with your current investors could be a viable alternative.
Who have you hired?
- Do you have the right team in place to shepherd your company through the next stage?
- With a Series B raise, investors will expect that you have filled the majority of your key roles including C suite and sales leadership positions.
- In addition, they’ll want to see people in those roles who have proven track records of success in their areas of expertise.
- If you’re still in the process of hiring those positions, haven’t found the right people, or are relying heavily on staff to wear multiple hats, then you might consider filling those roles before you pursue a Series B.
What are your other funding options?
- A Series B may seem like the most obvious funding option if you’ve already raised a Series A and Seed rounds, but there are other options to consider.
- You can look at debt financing or a convertible note to either bridge the two rounds or provide the last bit of funding you need to get profitable.
- In challenging economies, you can also get creative with your hires, offering more equity, for example, in lieu of high salaries in order to obtain good people without the immediate cash outlay.
- Strategic partnerships also provide an avenue for adding skills or capabilities while you’re in between rounds, teeing up for your next round, or looking to grow without additional fundraising.
If you have questions about raising a Series B, your Union Bank® banker can help. They can provide an overview of financing options catered to high-growth companies and connect you to strategic advisory services from experts who understand your company’s needs. As every founder knows, fundraising becomes a second full-time job. But do it well, and you’ll position your startup for a promising future of growth. Learn more about Union Bank Commercial Banking services. Our dedicated Client Relationship Managers are here to help.
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