The Series C round in funding is the fourth stage of startup funding and is considered the last stage of venture capital financing. However, some companies choose to undergo additional funding rounds. Series C funding is similar to Series B in that it relies on raising capital through the sale of preferred shares. The shares that stakeholders receive will likely be convertible though, meaning they can exchange their shares for stock.
Essentially, the Series C funding round is designed to make the company appealing for acquisition. Simply put, acquisition occurs when a company purchases most or all of another company’s shares in order to gain control of the company.
Investors for Series C Funding
The main investors for Series C funding include late-stage venture capital investors, private equity firms, and investment banks. At this point, there are a few key things that investors are looking for when companies reach this stage of their business.
For starters, investors expect companies to not only have a working business model but that your company has proven viability with a well-known product. Your company should be matured at this point so investors expect your company to have a strong market presence as well with more room to grow.
Along with this, companies should have spent time scaling their business as investors at this stage are now concerned with liquidity as your company prepares for acquisition.
Who is a Good Fit for Series C Funding?
One thing that sets Series C apart from other funding rounds is that companies that reach this stage are technically no longer considered a startup. This means that your company is experiencing continued and consistent growth. With that said, it is not uncommon for companies in Series C to focus on team expansion to continue meeting business demands.
For instance, you may need to expand your HR department. Or, you may find that your company is ready for new hires as the demand for your product supersedes what your business can currently handle.
Companies that have reached this funding round are doing exceptionally well and are ready to expand to new markets, develop new products, or even acquire other businesses. Companies at this stage may also be interested in reaching international markets, as well as, increasing their valuation before an acquisition or Initial Public Offering.
Along with this, companies at the Series C stage of their business are thinking a lot more strategically and about their long-term goals. With that said, these companies should have already started scaling their business.
Understanding Scale
Many companies confuse growing their business and scaling their business.
Growing your business means that you are increasing your revenue as equally fast as you are adding resources that allow the growth to take place. Scaling your business means adding revenue to the company at a faster rate than you take on new costs.
Ultimately, scaling is all about capacity and capability. This means that your company should generally have the capacity to grow and your company should have a strong infrastructure with systems, processes, and a team in place to accommodate any growth needs.
What are the Risks?
There are a few risks to consider with the Series C round of funding. It’s important to note that some risks from the previous funding round will be present in this round as certain key players such as venture capital investors are present. On the other hand, the Series C stage includes a few new key players that companies need to consider.
Venture Capital Investors
When pursuing venture capital investors for funding in this round, you may experience a clash of management. In fact, many venture capital investors are not just financial investors for your company. They also have strategic directives, meaning they focus on helping companies with things such as maximizing market presence and financial and operational growth.
In this instance, it’s not uncommon for investors to make decisions such as block acquisition offers that would give your company an advantage from a financial standpoint.
Another thing to consider with venture capital investors at this stage is that they sometimes include non-standard terms in their deals. One term, in particular, to pay attention to is the Right Of First Refusal (ROFR). A ROFR gives a person or a company the opportunity to start a business transaction before anyone else can.
This term can limit your options in the future and scare off potential acquirers who aren’t interested in going through the extra trouble of conducting due diligence or issuing an LOI.
Private Equity Firms
When it comes to pursuing private equity firms, one of the biggest things that companies need to watch out for is the amount of ownership they can lose in their company. While private equity firms often involve a lot more funding, this usually means that companies have to give up a much larger share of their business. In fact, these companies often request a majority stake in the company, leaving you with a significant loss.
Investment Banks
While a bank loan will allow you to keep control of your company, it certainly comes with a few things to consider. For starters, bank loans often come with high-interest rates. Considering this and the fact that many banks often don’t give as much money as the company needs, this can make meeting your expansion goals a lot more difficult.
Another thing to consider with banks is that it is difficult to qualify. It is going to be important that your company has a substantial track record or at least valuable collateral. Along with this, it’s not uncommon for companies to provide personal guarantees in order to qualify for funding. This means that your assets can be seized in the event the business fails.
Getting Started With Series C Funding
At this point, your company has certainly soared past the startup stage, is dominating the market, and ready for expansion whether in new markets, product development, or acquisition.
With that said, to get the attention of investors, companies need to ensure they are successfully managing their business as they continue growing. Along with this, companies need to be able to show investors that there is an opportunity for more growth in their business, especially when thinking about a business acquisition.
Aside from this, companies should emphasize a track record of reliable cash flow. During this funding round, investors want to know that your company can pay for itself and then some.
Gaining access to venture capital investors, private equity investors, and banks for your company is made simple thanks to the internet.
As always, you want to find venture capital investors who are experienced with making investments in your industry and product. There are a lot of investors online and you don’t want to waste your time pitching to investors who aren’t a good fit for your company.
As for private equity investors, you will want to take the same approach as you would with a venture capital firm. Look for a private equity investor who is not only experienced with making investments but investments in your particular industry. Be sure to take a closer look at the type of investments they’ve made and when they were made.
When it comes to bank loans, companies need to take the time to understand how banks will assess your company to determine whether you qualify. Here are a few things that investment banks will take into consideration.
- Credit Score
- Credit History
- Cash Flow
- Time in Business
- Collateral
- Industry
Growing your company to the Series C funding round is certainly an accomplishment. Your company is seasoned and therefore, has a strong position in the market with more room to grow. During this round, companies are more focused on expansion, entering new markets, and acquisition. If your company is ready for Series C funding or you want to learn more about how to acquire Series C funding for your company, contact us to learn more.