Series C funding frequently represents the last private round of funding before a company introduces its initial public offering, or IPO, and offers public shares on the stock market. Although every business is a little different, Series C funding often raises millions of dollars from banks, private equity firms or hedge funds in order to allow the company to expand into the global market or buy out a competitor. However, there are no hard and fast rules describing what Series C funding is used for or what the minimum dollar amount should be, so even small businesses can reach this funding round.
Who Receives Series C Funding?
In the simplest terms, Series C funding indicates that you're raising money for your company for the fifth time. Every company is a little bit different, so you might use your Series C funding round to finance growth or research that another company accomplished with Series A funding. However, many companies' funding rounds follow a particular pattern, and understanding this pattern can provide greater insight on the typical company seeking Series C funding.
Rounds of funding start with the preseed round, which raises a relatively small amount of money for market research or product development. If the research and development performed at this stage go well, the company enters the seed round, which raises "seed money" for the initial product launch. Assuming the target customer base reacts favorably to the product launch, the company raises money again — now called the Series A round — to scale up its revenue and implement a long-term strategy. When the company is ready to grow by adding new revenue streams or expanding to new markets, it raises money again in the Series B funding round.
This means the companies poised for the next round of financing, Series C, are ready to be major-league players. These companies have already proven that they can not only survive but thrive in their market, and they're ready to expand even further by reaching a national or international audience, buying out competitors or merging with another firm to significantly increase their market share.
Who Gives Series C Funding?
Compared to the previous financing rounds, Series C funding has the most diverse options in terms of where to find individuals and institutions willing to provide loans or capital. Up to this point, only lenders capable of providing high-risk loans have been interested in investing in your company due to the high possibility of its failure. Reaching the Series C funding round is a major milestone for many companies because it means they've identified a pain point in the market and have solved it so successfully that their revenue stream is quite stable.
By the time your company reaches the Series C funding round, it has already gained an excellent regional or national foothold and has significant traction. You've officially left the doubters in the dust and are asking for some serious money. Therefore, the institutional investors with deep pockets and low risk tolerance are more willing to provide funds to companies once they reach this stage. Series C funding is typically financed by traditional banking institutions, private equity firms and hedge funds.
Startup incubators, angel investors, venture capitalists, crowdfunding and friends and family do not typically provide Series C funding, as these lenders typically focus on riskier financial contributions for up-and-coming entrepreneurs and startups. You can still connect with your Series A and Series B round contributors to see if they would be interested in helping to fund your Series C round as well, but don't take it personally if your previous investors say "no" because they know you have access to other options and new investors.
How Much Money Is Raised?
The amount of money required at the Series C stage will vary from company to company, but it's usually in the hundreds of millions of dollars. Typical Series C business goals include acquisitions, mergers or significantly scaling up production by opening numerous national and international locations. Although your company's revenue can be reinvested toward these efforts, there's still a significant funding gap requiring substantial backing from private investors.
Pros and Cons of Series C Funding
A major advantage of reaching the Series C funding round is that you have the attention of the largest financial institutions. However, you only have their attention, not their undying support. These banks, equity firms and hedge funds may have deep pockets, but you're still asking for a significant chunk of it with no guarantee that you'll succeed in paying it back. Although you do have a track record that indicates you're highly likely to succeed, you'll need to do everything you can to assuage any lingering fears or doubts that these investors may have.
Be prepared to present a robust business plan to potential Series C investors, including thorough market research. If you want to expand to a global market, you'll need to show evidence that your product has an international appeal. Be up front about any potential obstacles you've uncovered during your research, like pertinent cultural differences, and explain how they'll be solved. In short, this isn't the time to swagger into a financial meeting and expect your reputation to speak for itself because you still have plenty of persuading to do.
In addition, there's some urgency to getting Series C funding right the first time. Most companies end their funding rounds with Series C. Investors who see that you're on Series D, E or even F will likely proceed with caution because any funding rounds after Series C typically indicate that your Series C round failed, and you need additional funds to try again. Although that's not always the case, do your best to make sure you're ready to tackle this funding round before you begin.
What Comes After Series C?
One of two things can happen after a Series C funding round has been completed. First, the company can choose to move on to another round of private fundraising, called Series D funding. This typically happens because the Series C funding wasn't sufficient — either in a bad way (not enough money was raised to meet the initial Series C goals) or in a good way (another market opportunity was identified, and the company is ready to expand even further).
The second option for companies that have successfully completed their Series C funding is to switch from a private company to a public company, thereby allowing company shares to be publicly traded on the stock market for future financing endeavors. In order to submit an IPO, companies must meet the standards of the federal Securities and Exchange Commission and be prepared for the increased transparency required of a public company. For companies that are ready for the transition from private to public, public trading can prove to be a powerful source of fundraising and acts as additional leverage for securing private loans as needed.
An IPO is the ultimate goal or exit strategy for all funding rounds, but it can take years to get there. If your company grows slowly or you aren't interested in moving beyond a small-business model, that's OK. If a great secondary market opportunity presents itself or your plans change, you can always conduct another funding series in the future.