- By SeedInvest
- October 13, 2022
- 6 minute read
After navigating the multitude of challenges in starting a new business, your company has achieved early success and is now well known in its industry. Your company still needs money to thrive and get to the next level, but the circumstances are different now. Your business no longer needs to fundraise to survive… It needs money to fuel its growth ambitions.
Series C funding will help expand your company into other markets, build new products, and could even fuel acquisitions of other companies. In this piece, we’ll learn the basics of Series C fundraising, including:
What Series C fundraising is
Where Series C funding comes from
How Series C funding works
The major players behind the process
What Is Series C Financing?
Series C financing is often the fifth stage of raising capital. It follows Pre-Seed, Seed, Series A, and Series B funding and is usually raised by companies that have had success in previous rounds and have achieved strong product-market fit.
If your business has gone through these phases of raising capital and is still around to tell the tale, you’ve not only beaten the odds, you’ve officially “graduated” from many of issues and challenges faced by early-stage startups.
Series C financing is typically the final stage of a fundraising journey. While some companies choose to continue their capital-raising pursuits through Series D and E rounds, Series C is where many companies stop seeking outside funding. Series C funding is usually reserved for expansion and growth, whether by servicing additional markets, buying complimentary companies to extend your reach, and launching new services or features.
How Does Series C Financing Work?
As was the case with Series A and B funding, Series C typically relies on selling preferred company shares in exchange for investor capital. Finding investors this time around may be easier than during the A and B rounds. At this stage, your company is garnering steady revenue and profits and likely has an established customer base. It is no longer classified as an early-stage startup. For this reason, investors may see your company as less risky, and institutional investors may be more likely to participate in the round.
Who are the Key Players in Series C Rounds?
Series C financing may see a return of many familiar faces from the Series A and B rounds. Venture capitalists and angel investors—known primarily for taking part in earlier rounds—may show up to invest during your company’s Series C. However, while previous rounds were likely dominated by angel investors and venture capitalists, Series C will attract many new players who play significant parts in the process.
These players include:
Such organizations usually involve limited partnerships of investors that use high-risk strategies—like investing with borrowed funds—in the hopes of obtaining considerable returns. Members are often charged high fees and are subject to fewer regulations. Thus, while hedge funds may be risky, limitations imposed on their investments are minimal. These organizations will often invest in multiple enterprises or assets at once, giving investors more opportunities for potential returns.
These financial institutions permit the participation of individuals, large corporations, and even government entities. They engage in advisory-based financial transactions and sometimes aid in acquisitions that often occur during Series C funding rounds. Companies looking to raise Series C funding may try to purchase other firms to expand their territory, breadth, and power and limit competition.
Private Equity Groups
Private equity groups (PEGs) are financial buyers that work on behalf of investors to purchase businesses and make them profitable. PEGs may spend between three to seven years doing this before selling purchased companies for hefty profits, which their investor clients then split. The presence of large investment players like these can be attributed to your company no longer being considered a high-risk investment. As an established and successful firm, the chance your business will default in the future is relatively low, and prominent institutional players want to take advantage of that.
Types of Series C Fundraising
As part of your Series C fundraising, you can use various tools and methods to add to your pool of funds. These include:
Acquiring other companies
You've likely heard the phrase, "If you can't beat them, join them." In the world of business, that phrase is often changed to, "If you can't beat them, buy them." No matter how successful your company becomes, you will always face competition. Your goal should be to snuff out as much of the competition as possible to ensure your domination of the market. Sometimes, the only way to do that is by purchasing competing companies and making them divisions of your own.
This doesn't mean you should go about buying up every business venture you see. If you run a store that sells flowers, for example, it doesn't make much sense for you to purchase a nearby auto mechanic shop. The fact that it's in your vicinity doesn't present any potential threat. It's an entirely different venture, and the customers going to that shop are looking for entirely different products and services than what you offer.
However, a nearby nursery might present competition that you could do without. That company could attract customers that could easily benefit from your services. Thus, offering that nursery the right figure could convince the owners to sell. There are benefits on both sides: they get to retire early with a nice chunk of money in their pockets while your business expands and cements its position even further in its industry. Any customers who went to that nursery could now go to you, increasing your sales and profits.
Series C fundraising can be a great way to grow your company's valuation in anticipation of an IPO (initial public offering). IPOs happen when private companies are ready to offer shares to members of the public—both retail and institutional—for the first time. IPOs are used to raise more capital, but Series C funding helps build a company's valuation ahead of a public offering. The larger and more stable a company is, the higher it can price shares during an IPO.
There are many benefits to hosting an IPO, including:
A) Improved public image
A publicly listed company looks solid and established. This will likely bring more investors on board, including deep-pocketed institutional players such as banks, who are historically more inclined to get involved with a publicly listed company. The company will also be viewed as more accountable, given that profits, dealings, and any additional details pertaining to a publicly traded company must be made transparent and available. Your company could also garner heavy media coverage.
B) Motivation for your employees
Following an IPO, your company may choose to reward its employees and others who have stuck around over the years and contributed to its success. With an IPO in play, you're now positioned to offer benefits like stock packages, ensuring that all employees who take part will see their portfolios grow if the company continues its trajectory. With skin in the game, they'll be more likely to commit to helping ensure the company remains successful to keep their stock portfolios stable and strong.
For the investors that have stuck with you from the beginning, an IPO can supercharge the value of their equity stake. IPOs invite new influxes of capital, and companies with high valuations can charge top dollar for shares. Early investors will also see their investment returns rise thanks to the participation of new arrivals, keeping them happy and more willing to provide further support.
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