Table of Contents
- What Is Series B Financing?
- How Series B Financing Works
- Series B Equity
- Series B Financing Resources
- Series B Financing Via Crowdfunding
- Real-World Examples of Series B Funding
- When Does a Series B Financing Round Happen?
- How Much Equity Does a Typical Company Offer During Series B Financing?
- How Much Do Most Companies Raise in Series B?
- The Bottom Line
What Is Series B Financing?
Let me explain Series B financing directly to you: it's the second round of funding for a business, coming from investors like private equity firms and venture capitalists. You should know that funding rounds are labeled consecutively as Series A, Series B, and Series C. This round typically happens when the company has hit certain milestones in its development and moved past the early startup phase.
How Series B Financing Works
By the time a company reaches Series B, it has advanced its business, leading to a higher valuation. You can see companies raising funds in various ways during this round, and Series B investors pay a higher share price than those in Series A did. Remember, Series A is about seed capital for startups with a solid model, used for expanding operations like buying equipment, inventory, and hiring staff.
Series B capital often comes from the same sources as Series A, such as venture capital or private equity, and sometimes the same investors contribute more. This round follows after the company has generated revenue, giving investors a view of the management's performance. That's why Series B involves less risk than Series A, though Series A investors get lower share prices to offset their higher risk.
Series B Equity
Publicly traded companies raise capital by issuing more equity shares, but this can cause dilution, reducing existing shareholders' ownership percentage and potentially lowering stock price and valuation. To counter this, Series B investors prefer convertible preferred stock over common stock because of its anti-dilution protections. Plus, preferred stockholders get dividends before common ones—those are cash payments from the company to shareholders.
Series B Financing Resources
Beyond public markets, businesses have more fundraising options now. In Series B, companies often stick with familiar channels from Series A for ease. Sometimes early investors increase their stake with more money. For startups and small businesses, sources include private equity, venture capitalists, and credit investments, though these might have limits like capital percentages per investor.
Overall, you have growing choices for raising capital at any stage, and in Series B, companies might repeat Series A methods or try new ones that fit better.
Series B Financing Via Crowdfunding
As companies grow and make revenue, they can tap into crowdfunding for equity, offering investment to a broad market of retail, private equity, venture capital, and institutional investors. They can also get loans from the public through internet platforms that connect them efficiently and at low costs.
This has gained popularity in small business thanks to government support and the JOBS Act, though there are limits on fundraising amounts and per-investor allowances. Still, it opens up a wider market for capital.
Real-World Examples of Series B Funding
Technology and healthcare sectors often see Series B funding. Take Nuro, a robotics company in Mountain View, California—they raised $940 million in February 2019 from SoftBank Vision Fund, reaching a $2.7 billion valuation after a $92 million Series A.
Then there's Zoox, founded in 2014 for self-driving tech, which raised $500 million in July 2018 led by Grok Ventures, hitting $3.2 billion valuation with $800 million total raised.
In healthcare, Devoted Health, started in 2017, raised $300 million in October 2018 from Andreessen Horowitz and others, focusing on Medicare Advantage plans for seniors.
When Does a Series B Financing Round Happen?
For most companies, it takes 10 to 18 months from Series A to Series B, based on Arc Ventures data. But only about 66% of Series A companies reach Series B; the others fail or don't raise more.
How Much Equity Does a Typical Company Offer During Series B Financing?
In Series B and C, companies usually sell around 15% of their total equity, according to Equidam figures.
How Much Do Most Companies Raise in Series B?
In 2021, the average U.S. Series B round raised $45 million, up nearly 50% from the year before, per Crunchbase data.
The Bottom Line
Series B is the third round of equity financing for new companies—wait, actually it's the second after seed and Series A, but by this point, startups are established with cash flows and viable products. Investments here are less risky than in Series A.
Key Takeaways
- Series B financing is the second round of funding for a company that has met certain milestones and is past the initial startup stage.
- Series B investors usually pay a higher share price for investing in the company than Series A investors.
- Series B investors typically prefer convertible preferred stock vs. common stock due to the anti-dilution feature of preferred stock.
- Series B funding can come from private equity investors, venture capitalists, crowdfunded equity, and credit investments.
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