What is Series B financing?

The second round of investment money for a firm, Series B financing, comprises venture capitalists and private equity investors. Series A, Series B, and Series C finance are the terms used to refer to successive rounds of funding for a corporation. Series B financing often occurs once the firm has progressed beyond the early startup phase and reached certain developmental milestones.

How Series B Financing Works

Companies have progressed their businesses in a Series B funding round, which has led to more excellent value at this point. Businesses might look to raise money in a Series B fundraising round in several ways. Series B investors often pay a higher share price when investing in a firm than those who invested previously during the Series A fundraising round.

Capital-raising for businesses with a strong business plan is part of Series A funding. They are typically sourced from private equity companies; Series A funds employ people, purchase goods and equipment, and expand operations. Given that Series A money is intended to support the growth of startups, it is regarded as seed capital.

Like Series A rounds, venture capital or private equity firms often provide the funding for Series B rounds. As the firm gains more traction, new investors may decide to join in. Still, in many situations, the original investors who funded the Series A round may contribute further during the Series B round.

The following fundraising round, series B financing, occurs after the business has time to make money from sales. Investors may assess the performance of the management team and determine if the investment is worthwhile. Consequently, compared to Series A funding, Series B financing often carries a lower level of risk. To help offset that risk, Series A financiers purchase shares at a reduced price.

B-Series Equity

Publicly traded corporations might increase their equity shares on the open market to generate cash or funds. Share dilution, however, may be a disadvantage in generating money via the issue of additional shares. When new shares are issued and the ownership proportion of the current shareholders decreases, this is known as dilution. It may be unsettling for early investors when dilution results in a decrease in the stock price and value.

To lower the risks associated with dilution, Series B equity investors typically prefer convertible preferred stock over regular stock. Preferred stock owners benefit from various anti-dilution provisions, which is why they are preferred. Moreover, dividend payments to preferred owners precede those to regular stockholders. Cash disbursements to shareholders by the corporation are known as dividends.

Resources for Series B Financing

Businesses now have more options for fundraising than only the public markets via which they may raise funds. Because they are comfortable with them and it makes reporting easier, firms that have previously sought fundraising methods generally use them for Series B capital. In rare circumstances, the original Series A funding investors can choose to increase their financial commitment to the business by giving them extra loans.

Financing options for Series B financing for startups and small enterprises include credit investments, venture capitalists, and private equity investors. Certain investment restrictions, including a maximum proportion of capital from each investor, may be necessary for direct capital raising from venture capitalists and private equity investors.

Small firms are generally presented with an increasing array of alternatives when acquiring funds throughout all funding phases. Companies might repeat identical fundraising strategies used in Series A financing or choose new financing strategies that better suit their current needs in Series B financing.

Crowdfunding Series B Financing

Companies may use crowdfunded equity to draw in new financing sources as they expand and generate income. Businesses may offer their firm for investment to an unrestricted market of institutional, retail, venture capital, and private equity investors in the crowdfunded market.

The general public and other crowdfunded investors can also lend money to businesses. A crowdsourced internet finance provider runs an online finance platform where these investment activities take place. Because internet finance operations cut expenses, the supplier links firms with investors at a low cost to both sides.

Because of governmental assistance and the Jumpstart Our Company Startups (JOBS) Act, crowdfunding has gained popularity in the small company sector.

Capital allocations per investor and fundraising levels are also restricted for certain investments. On the other hand, firms may access a larger market for funding via crowdfunded investments.

Examples of Series B Funding in the Real World

Technology and healthcare remain essential industries despite numerous businesses obtaining private finance. Three series B funding samples are shown below.

Automation

In February 2019, the SoftBank Vision Fund led $940 million in Series B financing for the robotics startup Nuro in Mountain View, California, giving it a $2.7 billion market value. Established in 2016, the business has already secured $92 million in Series A investments, which Greylock Partners and Gaorong Capital led.

Technology that Drives Itself

Founded in 2014, Zoox is a self-driving technology development business that received $500 million in July 2018 via a Series B investment. Grok Ventures’ Mike Cannon-Brookes led the Series B fundraising round, which valued the firm at $3.2 billion. Zoox has raised $800 million in total.

Medical Care

Devoted Health, established in 2017, secured $300 million in Series B investments in October 2018. The primary investors, Andreessen Horowitz, Premji Invest, and Uprising, funded the insurance startup in Waltham, Massachusetts. Seniors may choose from various Medicare Advantage plans offered by Devoted Health.

When does a Series B Financing Round take place?

Arc Ventures research indicates that the typical firm has to wait 10 to 18 months to move from its Series A investment to its Series B round. But just 66% of businesses that successfully raise money in a Series A round go on to a Series B. The others either don’t raise any more money or fail.

During Series B Financing, How Much Equity Does a Typical Company Offer?

Based on data from Equidam, most firms sell around 15% of their entire stock during the Series B and C rounds.

In Series B, How Much Do Most Companies Raise?

Crunchbase data indicates that the typical Series B funding deal in the US in 2021 garnered $45 million. That is more than half of what it was last year.

Bottom Line Series B financing is the third stage of equity funding for startup businesses. When most firms search for Series B capital, they are already well-established, with steady cash flows and a marketable product. Compared to Series A funding, investments in a Series B round are often less hazardous.

Conclusion

• The second round of investment for a business that has progressed beyond the startup phase and reached specific goals is known as Series B financing.
• Series B investors often pay a higher share price than Series A investors when investing in a firm.
• Because convertible preferred stock has an anti-dilution advantage over ordinary stock, Series B investors often choose it.
• Private equity, venture capital, crowdsourced equity, and credit investments are possible sources of Series B finance.