How to prepare for Series B funding

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Getting ready for the Series B funding round requires comprehensive planning, in-depth research and concrete evidence. Read this short guide on how to prepare.

More on Series B funding:

What are the sources of Series B funding?

Typically, for Series B, the answer is Venture Capital firms and Private Equity. In some cases, investors from Series A rounds will inject more cash into the Series B rounds. At each new stage there is a new valuation of the business. Another option at this stage is crowdfunding. 

When should a company do it?

There is no one-size-fits-all amount of runway needed between Series A and B. This will vary depending on the circumstances of each business. Running out of cash is a leading cause of startup failure, however, so it is a vital question to get right. Investors will also focus on recent performance, so ideally the business will have sequential quarters of strong growth to show it is performing well. The ultimate aim at Series B is to get the right investors, at the right time and with the right amount of capital.

Performance measures investors look for at Series B

At Series B stage a business is in the process of scaling up. Series B rounds are primarily about growth. At this point investors want to see that the business gained traction in the marketplace, to show growth in revenue and users. They will want to know how the business is planning to spend its money, the level of investment needed and what the exit strategy is. 

Series B investors put more emphasis on financials and operating metrics. At Series B investors will want to see how much is being spent on marketing, how much on the finance function? What is the growth plan? What is the strategy for different markets, or for international markets? There's a lot more emphasis on these aspects compared to earlier rounds.

Prospective founders will also have to show how they have spent the Series A investment. Investors will want to look back and examine financial data from launch. It is important founders track this from day one.

The key questions that investors will ask to gauge performance at this stage are:

  • Does the company have Product-Market Fit?

  • Is the company growing quickly?

  • Is it growing efficiently?

  • Is it retaining Customers?

  • Is it selling the product/service efficiently?

  • What is it going to cost to scale?

Gauge interest and target investors carefully

As with any round it is vital to choose partners with care. They have to back the company’s vision and the relationship needs to survive through thick and thin. Being able to articulate that story is essential for getting buy-in.

Do the groundwork, if possible, months in advance of the round. Target the firms and investors that match the company’s interests and specialities. Pinpoint the partner within those firms that could take an interest in the company. Use networks and contacts to get time with the relevant partners, ideally through a referral. Also gauge interest from existing investors because if appetite is low, the raise is unlikely to happen.

Have a senior team in place 

At this stage founders need to have credible senior management around them. Series B investors want to have confidence that the team in place is capable of executing on the plans being pitched. Senior hires are the people who will deliver and create opportunity for the business, not the volume hires.

VCs will want to know about the executives and how they fit into the business. If it is a first time CEO, investors will be impressed if they are able to hire senior team members with significant experience. Funding rounds as they progress take more and more resource, so having an experienced team in place is also vital to survival.

Market segmentation and approach

At Series B this aspect is key for investors. They will ask questions such as:

  • Have you identified the target market for both the short and long term?
  • How do you target and connect with these buyers?
  • What is the sales cycle to move buyers from one stage to the next?
  • How long is each stage?
  • If plan A does not work, what is plan B, C, or D?
  • What unforeseen and foreseen risks will impact the business the most?

Know the company valuation

Valuations for Series B tend to be higher as the business will have shown traction by this stage. Knowing the company’s value before entering the round is key. To work this out accurately, it is important to know the key metrics for valuations, such as:

  • Annual Recurring Revenue (ARR)

  • Growth rate

  • Net Revenue Retention (NRR)

  • Customer Acquisition Cost (CAC)

  • Customer Lifetime Value (LTV)

  • Gross margin

Get the pitch in shape

Before pitching to top investors take as many meetings as possible. This will help refine and hone the Series B pitch by being tested on different aspects. By the time it is in front of the targeted investors, founders should have a tight pitch and be ready for challenging questions.

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