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Series B Funding: Scaling Your Startup to New Heights

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  • Harvey John Arunangshu Munshisenior consultant
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Updated: 23 October, 2024
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Editor's Note:- Series B funding is one of the most critical phases in your startup's growth cycle, where it focuses on scaling operations and expanding market presence. In this blog, we give you key insights into the Series B funding process, which will help you understand its importance and how to approach it strategically for continued success.

In the world of startups, the real boss is Funding. Nowadays, companies that are doing good business and making profits or having revolutionary ideas receive funding. Whether it’s to boost the startup’s growth, explore new regions, or launch new products. A startup always needs Cash in Hand to gain more momentum. Seed funding gives a company the initial boost to get started, covering early expenses like product development, prototype, and market research. On the other hand, series A can provide a necessary runway for the business.

Series B funding distinguishes successful startups prepared for growth, from those still facing challenges. Series B is a very important round that can make or break a startup.

Let’s dive into Series B funding, exploring what it necessitates, how it stands apart from other funding rounds, and how startups can strategically position themselves for success.

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What is Series B Funding?

Series B in the capital raising process is a stage followed by Seed funding & Series A funding. It's an equity-based round where the investors fund the company in exchange for the company’s stake. At this stage, companies have proven their business model and survived in the market. But require extra cash in the bank to scale up their operations, or develop new markets.

Series B funding is typically driven by venture capital and private equity firms, though it may also include participation from angel or corporate investors. The funding amount usually ranges from a few million to tens of millions of dollars, depending on the startup's growth potential and financial requirements.

By the time a startup reaches Series B funding, it should ideally have a steady stream of revenue. So, that investors get a clearer picture of how the management team has performed, allowing them to better assess whether the investment is worthwhile. As a result, there’s typically less risk involved compared to Series A financing.

Series A funding vs Series B funding:- What are the key differences?

In both funding rounds, investors fund the company with capital in exchange for equity. However, there are some differences between series A and series B funding.

Series A funding is the first institutional funding for a startup. Through series A funding, companies achieve the key milestones that the key members of the company set like launching a product or service and building a team. Series A investors are primarily interested in the company's ability to revolutionize their market and deliver long-term value.

Series B funding is raised by a company when they have already achieved their first milestones and now looking to scale and grow. This round of funding is used to expand the business in new markets, develop new products, and hire new talent who can be an asset to the company. Series B investors usually seek solid proof of the company’s potential, focusing on factors like user growth, revenue generation, and market share expansion.

Another big difference between series A and series B funding is the amount of raised capital. The average Series A round in India is from $5 million to $10 million, which is less than the Series B funding round. However, on average the company raises $10 million to $20 million during its series B funding round.

Who are the investors in Series B

The Series B round is a critical round for the company and during series B round many investors participate. So, we have mentioned some primary types of Series B funding.

Types of Series B Investors

types of series b investors

1. Venture Capitalists: These firms are the most common investors who invest in startups. They have a deep knowledge and understanding of the startup eco-system and they also help the company with connections, different strategic guidance, and useful resources to help the startup grow. Examples: Blume Ventures, Nexus Venture Partners, Kalaari Capital and Chiratae Ventures.

2. Previous Investors: The venture capitalists who have participated and invested in the company previously during Series A or seed funding may choose to re-invest in the company to increase their stake in the company.

3. Private Equity Firms: Some private equity firms specialize in investing in startups where they look for an established business with a proven model and growth potential of the company before they invest large sums of capital in the business. Examples: KKR (Kohlberg Kravis Roberts), Bain Capital, Sequoia Capital India, TPG Capita, and Blackstone Group.

4. Equity Crowdfunding: As companies grow and gain revenue, they can also attract new sources of funding via Crowdfunding. Allowing retail investors to participate in the series B round. This democratizes investment opportunities and enables a broader base of support for startups.

5. Institutional Investors: Institutional Investors such as hedge funds and mutual fund houses also participate in Series B rounds. Institutional Investors see the potential growth of the company for significant returns.

How much equity does a company dilute during Series B funding?

During the Series B round, most of the companies typically dilute ~15% stake or it depends on the company’s founder and co-founder how much they are willing to dilute.

How to get Series B funding?

how to get series b funding

To raise a successful series B round, startups need to be prepared and focused on demonstrating their product potential. Here are the top 5 strategies to help the companies to raise Series B funding:

1. Flaunt your metrics

One of the crucial things investors look for before investing in the company is the success ratio of the company. The company should show product-market fit (PMF), which means that the company has loyal and repeat customers who love the product or service. Historical data and key performance indicators (KPIs), like user acquisition, revenue growth, and market share, are crucial indicators of a startup's progress and potential for success. These indicators help to tell the story of how far they’ve come and where they’re headed.

2. Build your ideal team

Apart from the metrics, the series B investors also look for evidence of a solid and capable team. For a startup, it is essential to have a strong core team with experience, passion, and innovation to bring diverse perspectives and ideas to the work table.

3. Leverage the influence of storytelling

To get the spotlight in the market, startups need to build a story to capture the attention and imagination of Series B investors. Among other things, the story should highlight the company’s long-term vision for the future and its ability to disrupt the industry with the value that it delivers to its users.

4. Harness the power of your connections

Raising series B is more difficult and competitive compared to pre-seed , seed, or series A funding due to fewer investors who are specialized in this stage. For startup founders, it becomes very important to build relationships and network with the series B investors.

Make sure to update them on your progress and accomplishments regularly.

5. Master the details of the funding round

Startups face numerous challenges during and after a Series B round. Expectations are higher, and the founder is no longer selling just a company vision. The company needs solid momentum to scale. Unlike the seed round built on hope, and Series A based on early progress, Series B relies on hard numbers. With a smaller investor pool and in a competitive market, setting an unrealistic valuation or lack of differentiation could turn series B investors away.

Before raising any series round, the founder and co-founder should do the groundwork including a strong pitch deck, thorough research on investors, trusted legal advice, and polished negotiation skills to secure favorable terms and valuation.

Conclusion

It is said that Series B funding is a turning point for many startups. Through Series B the company receives the required amount to expand and grow its business and to enter a more competitive market. Getting funded by the investors during Series B is also not easy, however, it helps the startups to scale their business and get closer to their vision. Like other funding rounds, Series B rounds tend to be less risky than Series A rounds because most startups are already well established when they are looking for Series B.

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