Series B Funding: Your Guide to Boost Your Chances of Attracting Investment

Businesses need capital, and investors need to provide capital.


Series B is another stage of the fundraising process for both companies and investors, and this guide will walk you through all of these steps and more as we unpack everything you know about Series B funding.


To learn more about other terms commonly used in venture capital, check out our complete VC Glossary.


Series B - Confluence.VC

What is a Series B?

A Series B is a round of financing for a startup, typically led by venture capitalists or growth equity investors. These companies are more established, they have a proven track record, and they need more capital to grow.


These rounds are usually larger than Series A rounds. Series B capital is to help startups scale their businesses by hiring more staff, opening new offices, and expanding into new markets.


This round of fundraising becomes an option when a startup has achieved certain operational milestones. At this stage, the business has an advanced and more established business model. Because of this, it will be highly valued.


Venture capital firms and other potential investors can offer the startup more money in the Series B funding round because the risk is generally lower. In addition, the company has already generated some revenue, proving to investors that the business is viable.


Founders pursue this funding from different types of investors to either develop a new product line, refine their existing brand, or target a larger audience.


What does a Series B company look like?

A Series B company usually has a working product, a proven business model, and some early traction. They will have generated revenue but may not yet be profitable.


These companies usually have a larger team (15-50+ people), and they are typically led by experienced entrepreneurs who have previously raised money.


Additionally, this type of company has an established track record of how they utilized the funding round received from Series A. Because of this, investors can access more information to help them decide whether to invest in the company.


How much revenue do you need to raise a Series B?

There is no hard and fast rule, but most companies generate at least $5 million in revenue before they are ready for a Series B investment. Usually, this number is much higher, and they should show growth month-over-month.


Who typically funds Series B rounds?

Venture capitalists are the most common investors in Series B rounds, however, there are also a number of strategic investors who participate in these rounds.


This could include venture capital funds, growth equity funds, private equity funds, corporate VCs, hedge funds, family offices, or sometimes angel investors.


What are the terms of a Series B investment?

Series B investments are usually larger than Series A investments, so the terms are typically more favorable to the company.


The most common terms include:


  • Preferred stock: This is the type of stock that investors receive in a Series B round. Preferred stockholders have priority over common stockholders if the company is sold or goes public.
  • Dilution: Series B rounds typically involve some level of dilution for early investors and employees.
  • Valuation: These companies are usually valued at $20 million or more. For more up-to-date valuation numbers, check out this trends valuation trends report from Cooley.
  • Liquidation preference: This is a clause in the contract that outlines the payout order if the company goes bankrupt. This is the preferential treatment that investors receive if the company is sold or goes public. Liquidation preference gives investors priority; they get their money back. 


What do Series B investors look for?

When evaluating this type of investment, investors will look for a number of things, including:


  • A proven business model: Series B companies should have a business model that is working and generating revenue.
  • Profitability: While Series B companies are not usually profitable, they should be close to achieving profitability.
  • Traction: These companies should have some early traction, whether that be in the form of user growth, revenue growth, or market share.
  • A talented team: Series B companies should have a team of experienced entrepreneurs who have the ability to scale the business.
  • A proven track record of hitting key performance indicators (KPIs): These companies should have a number of KPIs they focus on, and they should have a history of hitting those goals every quarter.
  • Previous investors following on: New investors like to see that old investors are doubling down on the company’s success.


What is Series B funding used for?

The funding is typically used to scale the business by hiring additional staff, opening new offices, and expanding into new markets. 


These funds are used to expand the sales team (more reps to reach their growth projections), the development team (more engineers to improve the product and justify higher prices), and open in new locations to expand the talent pipeline as they advance.


How large are Series B rounds?

Series B rounds are typically larger than Series A rounds, ranging from $5 million to $50 million. The average  round is between $10 million and $20 million.


How much is a Series B company worth?

A Series B company is typically valued at $20 million or more. This valuation is based on several factors, including revenue, growth rate, profitability, and the team.


How much equity do Series B investors take?

These investors typically take a minority stake in the company, with 20-40% being the most common range. This means that the founders and early employees will still own the majority share.


How long does it take to raise a Series B round?

The trend indicates 3-6 months to raise a Series B round. This time frame can be shorter or longer depending on the company’s situation.


There are a number of factors that can affect the timeline for raising a Series B round, including:


  • The strength of the business: If the company has a strong business model and is generates revenue, it will be easier to raise money.
  • The team: An experienced team with a track record of success will be able to raise money more quickly than a less experienced team. If you’re looking to level up your team, check out the Confluence.VC job board and talent collective.
  • The market: If the market is hot, investors will be more likely to invest in a company.
  • The timing: Sometimes, it can just come down to timing. If a company is pitching investors at the right time, it will be more likely to get funding.


What happens after Series B?

After a company completes a Series B round of funding, it will typically use the funds to scale the business.


This could involve hiring more staff, opening new offices, or expanding into new markets. The goal is to continue to grow the business and build on the momentum from the previous round of funding.


If all goes well, the company with a higher valuation can raise more money in the next funding stage.


What are the downsides of raising a Series B?

The downsides of raising a Series B include dilution for early investors and employees and increased pressure to scale the business quickly. Additionally, these rounds can be challenging if the company is not performing well.


The total number of Series B funding recipients was 25% higher in 2021 than the previous year, and the investments increased from $25 billion to approximately $50 billion. Despite this, the company may succeed in a small market during the initial funding round and not thrive in a larger market.


How do you prepare for a Series B?

To prepare for a Series B, companies should focus on three things:


1) revenue growth

2) profitability

3) building a strong team


The company should also have a clear strategy for using the funds from this round.


What should be avoided during a Series B?

Some things to avoid during a Series B include overspending, hiring too quickly, and expanding into too many markets. Additionally, companies should be careful not to dilute their early investors and employees too much.


What is the difference between Series A and Series B funding?

Series A and Series B funding are both types of equity financing companies use to raise capital. The main difference between the two is the stage of the company’s development. Series A funding is typically used by startups to get their business off the ground, while Series B funding is used by more established companies to help them scale. 


Additionally, Series B rounds are usually larger than Series A rounds and come with more pressure to perform. Finally, investors in a Series B round will typically take a minority stake in the company, whereas investors in a Series A round may take a majority stake.


The Series A funding round differs from the Series B one based on how the cash is used. While Series A comes in handy for businesses looking to refine their processes, Series B helps the startup reach a broader market.


Venture capital firms in Series A pay a lower equity price because there’s a greater risk at this stage. However, Series B investors will provide more funding because the business is more stable at this stage. Therefore, during the funding rounds, they will pay more for equity in the company.


What is it like working at a Series B startup?

Working at a startup with this type of funding can be exciting and challenging. The company is usually at a critical point in its development, so there is a lot of pressure to perform. 


Additionally, the team is typically small, so everyone has to be highly diligent and organized. However, seeing the company grow and succeed can also be very rewarding.


One of the main challenges of working at a Series B startup is that there is often a lot of pressure to scale quickly. This can lead to long hours and high stress levels. Additionally, the team is usually small, so everyone has to wear many hats and be adaptable. 


If you are considering working at this type of startup, it is vital to be aware of the challenges and be prepared for a fast-paced environment.


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How much do Series B startups pay?

There is no one-size-fits-all answer to this question. Salaries at Series B startups can vary greatly depending on the company’s size, location, and industry. However, it is typically true that salaries are higher at these startups than at earlier-stage companies. This is because Series B startups are usually more established and have more money to invest in their employees. 


Additionally, the pressure to perform at this type of startup is usually higher, so employees are often compensated accordingly. If you are considering working at a Series B startup, you should research the company’s specific compensation structure.


How long does Series B funding last?

The funding round is typically meant to last for 18-24 months. This money is spent to scale the team and grow revenue to justify a Series A at a higher valuation.


How the company decides to spend funds is up to them.


 For instance, if the startup plans to open up new branches in other locations, most of the funding will be directed to this venture. This money could run out faster depending on the overall business operations. If the startup needs more, they seek out Series C funding options.


How to find investors for Series B funding

Whether you are targeting venture capital firms or other types of investors, you need to know how to find them. These potential investors are important thanks to their industry knowledge and connections. If you are unsure about where to get Series B funding for your business, you can use these tips to get started.


Pro tip: Use Confluence.VC to find Series B investors based on your needs


Research the key players

To get this type of funding for your business, you need to know the investors in your field. With this information, you can actively seek out these investment opportunities. Take time to find active Series B investment firms and see which projects they focus on.


Some venture capital firms work with a range of startups; however, some prefer to focus on a niche market. You can choose the best option depending on your needs. For instance, if your business is mostly focused on the niche market, you can seek out funding from specialized investors and leverage their industry connections.


Click here for lists of Confluence.VC Series B investors


Rely on your professional network

Once you connect with an investor in the Series A funding round, you can use this network to proceed to the subsequent funding round. If they can’t help you raise Series B and C funds, they can connect you to other investors within their networks. Their vested interest incentivizes them to make this happen to grow the business valuation. 


Prepare an attractive pitch

Now that the startup is growing, you need to showcase this to investors. Prepare an attractive pitch that communicates how your product will perform in a bigger market. In your pitch, you should include details about your company’s progress. Once it’s ready, you can present it to the investors. 


Apart from the pitch, it would help if you prepared your financials and details about your key team members. Include precise data and statistics about the company’s financial performance; investors need this to decide whether they’ll invest in your company. Some of the financial information to provide includes sales data, growth statistics, and customer numbers.


Bottom line

If your business is scaling, you can achieve more profitability by getting Series B funding. At this stage, the company is already generating some revenue; therefore, the boost from Series B funding is key to achieving profitability.


Venture capitalists and private equity companies provide funding opportunities to such startups because there’s an established track record of the company’s progress. A Series B company uses the capital to scale the business by hiring more staff, opening new offices, and expanding into new markets. These funds can also be used to expand teams and open branches in new locations.


Whether you’re looking to raise a Series B, join a Series B company, or invest in one, hopefully something in this guide was helpful to you.


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