While handling your business, you encounter many measures that will test you and your team. One might be finding many investors to fund your business to continue running until your desired timeline.
Suppose you’ve made it this far in the startup process. In that case, you already have a product or service that has been considerably battle-tested, and you’ve established an efficient organization that knows how to launch products across a variety of marketplaces.
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It would help if you used this success to convince a Series C investor that there is additional room for growth to attract more investors this round.
This piece discusses Series C financing, when and how much money should be raised, how long it should last, and potential funding sources.
What is Series C Financing?
After raising a Series B round, your company’s next growth-stage investment is a Series C round.
Dance fundraisers are undoubtedly familiar to you. You’ll pitch growth-stage investors on your company’s unicorn potential.
Investors will evaluate your firm based on internal due diligence data. They’ll negotiate a term sheet if you can work together.
After that, the money will be wired to your checking account, and you can continue making unicorns.
After this round, you should be able to regulate your spinning hypergrowth and ignite new growth sources.
You’ll have a substantial war chest to increase your workforce, expand into new locations to dominate global and regional markets and buy smaller companies to offer new products and services.
In most cases, series C funding is used for the following:
- Expanding your team by acquiring talented technical teams from smaller businesses that offer appealing goods or services is one way to do so.
- You can release more income when adding additional items or services to your recurring sales and marketing funnels.
- It is developing several financial projections and internal hypotheses to maximize the likelihood of a successful exit, whether through an acquisition by a large firm or the public markets.
How Does Series C Funding Work?
To get a Series C round of funding, you need straightforward data storytelling about your accomplishments and why you can grow. Grow-stage investors use data-driven due diligence.
Investors become recognition robots, focusing on your company’s internal traction measures rather than your vision-focused pitches from prior rounds. As mentioned, data diligence creates pre-emptive investment offers only in subsequent fundraising rounds, starting with Series C.
Series B investors have information rights to your scaleup. Your investors undoubtedly use the same internal data dashboards and have analysts assess your growth trajectories.
These companies are waiting to strike in your next round. They often set startup ownership targets. They want your most equity.
In practice, your Series B investor will visit your office and submit a term sheet before you solicit Series C funding.Â
When Should the Series C Be Raised?
We suggest you start the fundraising process for your Series C twelve to fourteen months before you exhaust the funds from your Series B. This will allow you, your team, and your board sufficient time to pitch your existing and prospective investors and convince them that your firm is on track to meet your revenue and growth goals.
If you and your team successfully developed an innovative product, going bankrupt due to poor cash-flow planning would be a profound disappointment for all of you.
It is common for new businesses to already have term sheets for their Series C funding round from the investors in their prior Series B round before they have even begun fundraising. This type of funding offer is known as a “pre-empting funding offer.” It typically occurs in Series C and later funding rounds due to revenue predictability in specific fields, such as enterprise SaaS.
How Much Money Should You Raise for Your Series C Project?
Startup funding depends on its needs. Industry growth burn rates vary. Due to recessions and corrections, corporate growth-stage checks are not guaranteed. Thus, you must solicit capital as if it were scarce.
An overarching practical structure seeks to raise cash for 24 months or break even. Talk to Series B investors or board members to better grasp your startup’s strategy.
They see more opportunities than you do, so they can give you strong growth figures for a Series D if needed.
Consider the average prices of pre-seed to Series A startups in your field that could be attractive acquisition prospects. Mergers and acquisitions allow Series C expansion. Thus, calculate how much money you would need to reach the top two most promising startups in your field if you had to pay 50% of their valuation in cash.
Series C funding helps hire an R&D. Since the stock has less value now, you may be giving competitive wages.
You should undertake a bottom-up analysis to establish how many additional team members you need to meet your revenue goals and then include a healthy cushion.
Sources of Funding for the Series C
The growth-stage funding alternatives available during Series B are functionally equivalent to those available during Series C. You will investigate many recurring revenue advancements in addition to venture capital funds, crossover funds, and venture debt.
How Long Should Funding for Series C Remain Active?
Series C funding should endure “forever” or “as long as it takes to get more money.”
As a general guideline, it should last your team as long as needed for either of the following options:
Reach product and revenue milestones before Series D or public market investors issue you a check.
If the best exit is available, talk to potential buyers.
Acquire enough market share in your markets to be profitable and grow without raising finance while remaining a private firm.
Growth needs more significant funding. Integrating new firms into your distribution channels can be costly and complex.
Due to high costs and lengthier growth ambitions, this usually corresponds to 24-36 months of operating cash flow (burn rate) before you run out of money. You can choose your fate if you are defaulted alive and make more money than you spend.
This is because you make more than you spend.
Final Thoughts
Like in other fundraising rounds, you will present to multiple investors, go through their due diligence, and negotiate conditions in Series C.
