What is Series B Financing?
Series B financing is the second round of funding for a business through investment, including private equity investors and venture capitalists. Successive rounds of financing a business are consecutively termed Series A, Series B, and Series C financing. The Series B round generally takes place when the company has accomplished certain milestones in developing its business and is past the initial startup stage.
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.
How Does Series B Financing Work?
Similar to the previous stages of financing that include seed and series A financing, the series B round is a type of equity-based financing. In other words, investors provide capital to a company in exchange for the latter’s preferred shares.
The majority of the deals include anti-dilution provisions like in the series A round. This means that a company usually sells preferred shares that do not provide its holders with voting rights. However, the shares often come with a convertibility option (i.e., the holders of the preferred shares can convert their shares into common stock at a future date).
Series B financing is appropriate for companies that are ready for their development stage. They are companies that generate stable revenues, as well as earn some profits. Also, such companies generally come with solid valuations of more than $10 million.
The proceeds from the series B round are primarily utilized to support the company’s growth to the next level. The capital raised can be used in various ways, such as sales, marketing, talent acquisition, and developing new technologies.
Series B Financing Resources
In addition to the public markets, businesses have an increasing number of fundraising resources for which they can obtain capital. In Series B funding, companies often utilize their previously pursued fundraising channels due to familiarity and reporting convenience. In some cases, the early investors from the Series A financing may want to up their stake in the company by lending them more money.
For startups and small businesses, Series B financing funding can come from private equity investors, venture capitalists, and credit investments. Direct capital raising from private equity investors and venture capitalists may require some specific investment constraints, such as a percentage of capital limit from each investor.
Overall, small businesses have a growing number of options from which to choose when raising capital at all stages of financing. In Series B financing, companies can select new financing methods that better fit their current situation or repeat similar funding methods as used in Series A financing.
Participants in Series B Financing
The key players are generally the same as in series A financing. Some of the investors from the previous funding stages may be willing to increase their stake in the company. At the same time, new investors enter the financing round. They are commonly venture capital firms that specialize in investments in later-stage companies, as well as some private equity firms.
Investors from the previous financing stages can help attract new investors into the company. Also, the introduction of new methods of financing such as online equity crowdfunding platforms makes the process more democratized. For instance, equity crowdfunding platforms allow the general public to participate in series B financing.
Note that the new investors commonly purchase the shares at a higher price than the investors who injected their money in the previous stages of funding. Thus, their returns are lower. However, the risk associated with losing their investments is lower as well.
Real-World Examples of Series B Funding
Although there are many examples of companies receiving private funding, two key sectors continue to be technology and healthcare. Below are three examples of series B financing.
In February 2019, Mountain View, California-based robotics company Nuro raised $940 million in a Series B round from the SoftBank Vision Fund–giving it a valuation of $2.7 billion. The company, founded in 2016, previously raised $92 million in Series A funding co-led by Gaorong Capital and Greylock Partners.
Zoox, a self-driving technology development company founded in 2014, raised $500 million through Series B funding in July 2018. The Series B funding round was led by Mike Cannon-Brookes of Grok Ventures and gave the company a $3.2 billion valuation. In total, Zoox has raised $800 million.