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When it comes to discussing funding for startups, the least talked about the stage is the Series B funding. It is widely believed that once a company has secured Seed and Series A funding, the Series B funding will automatically follow. Sorry to break the bubble, but that may not be the case. In fact, securing the Series B funding could be the hardest one out of all your investment rounds. Let’s see why it is so difficult and what you can do to prepare yourself for it.

Why is the Series B Funding Different?

The Seed funding is primarily based on the idea and vision of the founder. By the time you reach Series A round, the critical parameters are a tested idea, core team, and evidence of product-market fit. However, with Series B funding every parameter has to be supported by concrete evidence. It is no longer about positive assertions or ideal assumptions. A few of the most important parameters for Series B funding are repeatability and scalability.

Why is the Series B Funding Difficult?

The most challenging part of the Series B funding can be attributed to the business life cycle itself. Given that your company has reached up to this stage, investors would want to see how prior assumptions have turned into a reality. Investors are also keen on seeing a working revenue model generating some actual revenue. The existing revenue need not be huge, but there should be some earnings. You need to remember that at this stage your business is at a crossroad between the potential and actual deployment.

Why are Investors not too keen towards Series B Round?

When you are seeking Series B funding, your business is in a grey area. You are not asking for a Seed Fund, where investors can get higher equity for a smaller investment. Additionally, unlike during “Growth Rounds” your business is not approaching investors with something that is already working. A venture capitalist will prefer to wait and see if everything works as planned and invest more in future rounds. The Series B is a danger zone for both the investor and the company. To be able to secure Series B funding you need to approach the investors with a comprehensive business plan based on in-depth market research.

Create An Investor Pipeline

As we have seen so far, Series B round is most crucial and challenging among all the rounds of investment. You need to create a competitive environment before the actual process is initiated. You can start meeting investors at least six months in advance and built a healthy relationship with them. This will ensure that when the time comes to raise the capital, you will already have multiple offers and are not required to settle. Just like the Series A funding, it is important that you research the potential investors and their portfolios to find the one that will be better suited for your company.

As we have seen so far, Series B round is most crucial and challenging among all the rounds of investment. You need to create a competitive environment before the actual process is initiated. You can start meeting investors at least six months in advance and built a healthy relationship with them. This will ensure that when the time comes to raise the capital, you will already have multiple offers and are not required to settle. Just like the Series A funding, it is important that you research the potential investors and their portfolios to find the one that will be better suited for your company.
Lastly, before meeting with any potential Series B investor, you need to be prepared with clear and achievable future goals. During the investor pitch, you should mention where will be the funds utilized and how will it impact the future of the company. Clarity about the future on the part of founders at this stage can act as a deciding factor in closing a Series B Round of funding. Always remember, Series B is not the end of the road, other options such as Crowdfunding are always available to transform your dream into a reality.

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