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Basics of Fund Raising

5 Aug 2021
- admin
Every day in the news we hear companies being offered Series A, Series B or Series C funding but have you ever wondered what are these investments all about?

Let us figure out the basic difference between all these capital investments.

Series A, Series B and Series C funding are the basically process of attracting capital or investment from the external forces. There are many start-ups that engage in efforts to raise capital through external round of funding. Series A, Series B and Series C come into picture when businesses know that ‘bootstrapping’ – surviving off on the dependency of friends, family or your own pocket, will not suffice.

There are different groups involved in the funding process, mainly, individuals hoping to gain funding for their company and investors as they support entrepreneurship and believe in the aims and causes of those businesses and also hoping to get some return.

Before a company wishes to go for any funding, the company needs to get its valuation verified by the analysts.

Now let me try to explain what exactly is Series A funding. When an enterprise has proven and developed a record say consistent revenue, performance indicators, customer base, etc, the company may want to go for funding to further increase its user base and product offerings. What is important in this funding is a long-term business plan and a business model that will ultimately generate profits. Generally, Series A funding ranges from $2 million to $15 million but surprisingly the average Series A funding for 2020 was recorded at $15.6 million. This is because of the high-tech industry valuations and more unicorns in the market.

What is important for a firm is to not only have great ideas but a plan on how these great ideas will turn into a monetary benefit. The investors involved in Series A funding generally come from traditional venture capital firms. It is increasingly common for companies to use equity crowdfunding in order to generate capital as part of a Series A funding round.

Angel investors may also invest in this stage but their influence in this funding round declines as compared to the seed funding round.

Series B Funding: Series B funding comes after Series A is done. The investment takes place when the business has surpassed the development stage. Companies who wish to go on a larger scale and have proven to already have succeeded by creating substantial user base is when Series B funding and investors come into picture. Level of this demand is met in Series B funding.

The average estimated capital raised in a Series B round is $33 million. Well-established companies take part in the funding and it can be identified when analyst have valued the company ranging between $30 million and $60 million, with an average of $58 million.

Series B and Series A funding are similar in terms of process and investors. What different is a new wave of other venture capital firms that specialize in later-stage investing.

Series C Funding: The ones which have already proven themselves to be quite successful qualify for Series C funding. Why would a company need series C funding? This is because additional capital is now required in order to expand business horizons. Investors are interested in Series C funding because they seek the return double of their investment. In Series C, gatherings, for example, mutual funds, speculation banks, private value firms, and huge auxiliary market bunches go with the sort of financial backers. Series C funding is focused on scaling the company, growing as quickly and as successfully as possible. Most commonly, a company will end its external equity funding with Series C.

By Sambhav Jain
PGPM – Business Leadership, Class of 2022