What is Series B?

Series B funding is the third stage in raising capital for startups and the second stage in venture capitalism. It is sometimes referred to as Series B financing or a Series B round, and it takes place after Series A funding.

Funding for Series B usually runs between $10M and $20M, depending on which industry your business is in.

Startups begin with seed money — money that is either out-of-pocket at the business owner's expense or contributed by friends or family. Angel investors may also be interested in funding your startup at the beginning. Series B money ranges from hundreds to hundreds of thousands of dollars. After seed money, startups can apply for Series A funding. This amount ranges anywhere from $3M to $10M.

Financing for Series B is in the tens to hundreds of millions. Investors at this stage want a company that's well-established and fully operational. Businesses that qualify for this level of funding show stable revenue or have turned a profit, with a positive future outlook. There exists a solid customer base and product line, as well as room for expanding the business. In fact, expansion is typically the goal for Series B funding.

What to expect from investors

Applying for Series B funding relies heavily on data and metrics that give an analytical overview of your company's revenue, performance, valuation, and risk management. Larger amounts of funding require higher revenue. Investors expect growth and a decent return on their investment. These expected returns are usually laid out in a term sheet that is agreed upon before making a deal.

Potential venture capitalists prefer good company performance and management, solid business strategies, and smooth operations. They're interested in the growth rate of your business and historical performance, plus annual recurring revenue. Since funding at the Series B level is high, investors want a lower rate of risk as well. They'll look at the valuation of your company, revenue forecast, and current assets. Venture capitalists want proof your business meets the expectations listed in the aforementioned term sheet.

Investors provide capital for Series B funding based on your company's equity. A common term for funding your business is preferred stock or shares, which pay out dividends to shareholders. Preferred shares ensure that should your company file for bankruptcy, the invested shareholders are paid from the company's assets before those who hold common stock.

Where to find investors for Series B

Series B investors could be existing Series A investors, or they could be newer investors. Networking is one of the best ways to find the right venture capitalist. Most investors want a sure thing. If you're new to the game and haven't introduced yourself or business to the industry, it could be more difficult to get funding at this level.

Research core competencies of possible Series B investors. Take note of any potential conflicts of interest. For instance, the venture capitalist investing in your competitors may not be the investor for you.

Prepare for Series B funding using a simple pitch and business model. Include your company's performance and future expectations. Highlight growth, sales, customer retention, operation costs, productivity, and salary. Detail your business plan to outdo your competitors and dominate your field.

Series B is the third funding round for startups, taking place after a Series A funding round. The investments in Series B funding rounds are often higher. However, getting funding at this stage can be more challenging as investors have high expectations of companies seeking Series B funding.