The Rarified Territory of Series C Funding—And What Startups Need to Know

Startups that are considering raising a Series C round are entering rarified—and exciting—territory. In 2020, companies pursuing Series C funding had a pre-money valuation of $118 million and the median Series C round was $52.5 million. For these startups, fundraising is nothing new. In fact, maintaining access to venture capital has proven to be one of their strengths.

If you're approaching a Series C, then you’ve already done a lot of the hard work leading a successful, fast-growing company. In this next phase of fundraising, consider the factors that will make the round a success—and enable your continued growth. Such factors prove especially important during challenging economic times when investors will want to know how your company weathers a less than ideal business climate and finds opportunity amidst the risks.

Here are five metrics that Series C startups will want to focus on as they seek additional capital:

1. Solid customer retention

As one VC firm noted, “to get a Series A check, you need a product; to get a Series B check, you need traction; to get a Series C check, you need a business.” And great businesses have lots of happy customers. At this stage in a company’s lifecycle, the double or even triple-digit growth you’ve experienced may begin to slow. That makes sense, especially if you’ve garnered some good market share. For these reasons, showcasing strong customer retention, and conversely, low churn rates is important. Both reveal that your existing customers are not only satisfied with your product but that there are likely additional growth opportunities via new products or services within your customer base.

2. New product development

You’ve fully built-out your original product, and frankly, have probably released multiple updates and new versions. As you approach a Series C, investors will be interested in what’s next. They’ll want to know about the opportunity for additional revenue from wholly new products that your customers may want or need. This could mean introducing your product into new verticals. For example, if you’ve provided a strictly B2C product, then investors may be keen on knowing if there’s a B2B application. Your startup may also begin to explore entirely new product lines to attract even more customers or expand the lifetime value of the customers you currently have.

3. Acquisition possibilities

At this stage, your company is looking for multiple ways to drive continued growth. Acquisitions of competitors or companies with product lines complementary to your own provide a highly viable solution. Your Series C may fund the purchase of a company that doubles your market share or provides access to technologies and synergies that take your organization to the next level. If funding an acquisition is the goal, then bringing in an M&A team early to tee up the process is helpful. Such a team can provide insights into potential targets, deal structures, and the full range of capabilities that the acquired company might provide.

4. IPO potential

For the vast majority of startups, the Series C raise is the final stop on their fundraising journey. That’s because additional rounds often become so large, they exceed the funding capacity of private investors. At the point of a Series C, investors will certainly be interested in the potential for an IPO. And they’ll be wanting to learn how your company plans on increasing its valuation prior to the public offering. It’s important to note that determining valuation at this point is a more concrete exercise than perhaps the founders experienced in the past. The pre-IPO valuation will factor in the numbers of customers, existing revenue, and past growth.

5. The other investors

At this juncture, investment—while still risky—is far less so than in the early stages of the startup, when the concept needed to be proven and there was no or little revenue. Your organization now has a solid customer base, a proven track record of success, and the potential for even more. For these reasons, you’ll likely attract far more seasoned investors, including those who perhaps haven’t been in the mix before such as hedge funds, investment banks, and private equity firms. The ability to bring a connected investor that then brings in other, more high-profile players can be game-changing as the presence of each investor gives the other's confidence.

Continued growth is no small feat, and if you've reached the Series C stage, you've put in a lot of good work. Keep these factors top of mind as you raise Series C funding, and you'll find even more success.

Want to know more about fundraising? Check out our information on Series A and B rounds:

How To Prep Your Tech Startup For Series A Funding

Key Questions To Consider If You’re Pursuing a Series B

The talented team of Union Bank Commercial banking professionals is committed to addressing the unique needs of your company at every stage of its evolution. For more information, please visit the Union Bank Commercial Banking Group.