TL;DR
Series A, B, and C rounds are formal rounds of venture capital funding that follow a company’s seed stage. These rounds are structured to provide the necessary capital for startups to achieve specific growth milestones.
Each round serves a different purpose:
- Series A focuses on establishing the business and scaling the product or service.
- Series B aims to accelerate growth and expand market presence.
- Series C supports further scaling, acquisitions, or preparation for an exit, such as an Initial Public Offering (IPO).
Each round introduces new investors and may lead to dilution of the founders’ ownership, but it also provides the necessary funding to drive the company’s growth and increase its valuation.
How Do Series A, B, and C Funding Rounds Work?
As startups progress from one round to the next, the funding amounts increase, and so do the expectations for the company’s performance.
Here’s how each round typically works:
1. Series A Round
The Series A round is the first significant round of venture capital funding after the seed stage. At this point, the startup has usually developed a minimum viable product (MVP), has some early customer traction, and is generating revenue. The goal of Series A funding is to scale the business by refining the product, expanding the user base, and optimizing monetization strategies.
- Amount Raised: Typically between $2 million and $15 million.
- Investors: Primarily venture capital firms, but angel investors or seed-stage investors may also participate.
- Valuation: Startups typically have a pre-money valuation between $10 million and $30 million.
- Use of Funds: The capital raised in Series A is used to scale operations, grow the team, improve the product, and enhance marketing efforts to expand the customer base.
Series A investors are typically looking for startups that have demonstrated product-market fit and are ready to grow rapidly. In addition to funding, Series A investors often take board seats and play an active role in shaping the company’s strategy and direction.
2. Series B Round
The Series B round is the next stage of fundraising and is focused on taking a business that has proven its product-market fit and scaling it further. By this stage, the company should have significant revenue growth and a larger customer base. Series B funding is often used to expand the company’s market presence, develop new products, and enter new geographic regions.
- Amount Raised: Typically between $10 million and $30 million.
- Investors: Series B rounds are led by venture capital firms, often with participation from earlier investors and sometimes growth equity firms.
- Valuation: Startups at this stage generally have pre-money valuations between $30 million and $60 million.
- Use of Funds: The capital is used for business expansion, including hiring more staff, expanding marketing efforts, increasing production capacity, and developing new product lines.
Series B investors are looking for companies that are well on their way to becoming market leaders. They expect to see strong growth metrics, such as increasing revenue, user retention, and a scalable business model.
The company’s team is also expected to be expanding, with experienced management capable of executing a larger-scale business plan.
3. Series C Round
The Series C round is for mature startups that have achieved significant growth and are looking to scale even further.
By this point, the company has proven its business model, is generating substantial revenue, and is seeking to expand internationally, make acquisitions, or prepare for an IPO.
Series C funding is often the last round before an exit event, though some companies may continue to raise Series D or E rounds if needed.
- Amount Raised: Typically $30 million or more.
- Investors: Series C investors may include late-stage venture capital firms, private equity firms, hedge funds, and corporate investors. There may also be strategic investors looking for synergies with their existing businesses.
- Valuation: Startups at this stage often have valuations of $100 million or more, though it can be significantly higher for industry leaders.
- Use of Funds: Series C capital is used for major initiatives such as international expansion, acquisitions of competitors or complementary businesses, and preparing for an IPO.
Series C investors are focused on risk reduction and are looking for businesses with a clear path to profitability or exit. The company is expected to have mature operations, strong financials, and the ability to scale globally or dominate its industry.
Key Differences Between Series A, B, and C
1. Stage of Development
- Series A: Early-stage growth with a focus on scaling the product and market fit.
- Series B: Expansion-stage growth, focused on increasing market share and revenue.
- Series C: Late-stage growth, focused on large-scale expansion and preparing for exit strategies like an IPO or acquisition.
2. Valuation
- Series A: Valuations typically range from $10 million to $30 million.
- Series B: Valuations range from $30 million to $60 million, though it can be higher for companies with strong traction.
- Series C: Valuations can exceed $100 million, especially for industry leaders poised for an IPO or acquisition.
3. Investor Types
- Series A: Mostly venture capital firms specializing in early-stage investments, with some participation from angel investors.
- Series B: Led by larger venture capital firms with experience in scaling companies, sometimes joined by growth-stage investors.
- Series C: Involves a broader range of investors, including late-stage VC firms, private equity firms, hedge funds, and strategic corporate investors.
4. Capital Raised
- Series A: Typically raises between $2 million and $15 million.
- Series B: Typically raises between $10 million and $30 million.
- Series C: Raises $30 million or more, depending on the company’s growth needs and market opportunities.
Example of Series A, B, and C in Action
Let’s take Airbnb as an example of how Series A, B, and C funding rounds play out:
- Series A: In 2009, Airbnb raised $7.2 million in a Series A round led by Sequoia Capital. At this point, Airbnb was an early-stage startup with a growing user base but was still refining its platform and business model.
- Series B: In 2011, Airbnb raised $112 million in a Series B round to expand internationally and grow its user base. The company had achieved product-market fit and was scaling rapidly.
- Series C: By 2014, Airbnb had become a global leader in the vacation rental space and raised $450 million in a Series C round led by TPG Growth. This funding allowed Airbnb to continue expanding globally, develop new services, and prepare for a future IPO.
Conclusion
Series A, B, and C funding rounds are critical stages in a startup’s growth journey, providing the capital, expertise, and resources needed to scale from a promising early-stage company to a market leader.
Interested in learning more VC related terms? Head over to our VC glossary!