What is Series B Financing?

Series B financing is the second round of funding for a business through investment including private equity investors and venture capitalists. Successive rounds of financing a business are consecutively termed Series A, Series B and Series C financing. The Series B round generally takes place when the company has accomplished certain milestones in developing its business and is past the initial startup stage.

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Explaining Series B Financing

Basics of Series B Financing

In a Series B financing round, companies have generally advanced their business, resulting in a higher valuation by this time. Companies can seek various ways to raise funds in a Series B financing round. Investors usually pay a higher price for investing in the company than Series A investors.

Publicly traded companies can increase the number of shares issued on the open market. In early-stage funding, specifically in a Series B funding round, equity investors typically prefer to receive convertible preferred stock to common stock because of the unique features of preferred stock, such as dividend accrual and anti-dilution, that may not be available in common stock.

Key Takeaways

  • Series B financing is the second round of funding for a business.
  • Series B funding usually takes place when the company has accomplished certain milestones and is past the initial startup stage.
  • Investors usually pay a higher price for investing in the company than Series A investors.
  • Series B investors typically prefer to receive convertible preferred stock to common stock because of the unique features associated with preferred stock.
  • Series B funding can come from private equity investors, venture capitalists, crowdfunded equity and credit investments.

'Series B Financing' Resources

In addition to the public markets, businesses have an increasing number of fundraising resources for which they can obtain capital. In Series B funding, companies often utilize similar previously pursued fundraising channels due to familiarity and reporting convenience.

For startups and small businesses, funding can come from private equity investors and venture capitalists as well as crowdfunded equity and credit investments. Direct capital raising from private equity investors and venture capitalists may require some specific investment constraints, such as a percentage of capital limit from each investor.

Crowdfunded Investments

Crowdfunded investments have become popular in the small business sector thanks to federal government support and the Jumpstart Our Business Startups (JOBS) Act. These investments also have limitations on fundraising levels and capital allowances per investor. However, crowdfunded investments provide a wider market from which businesses can receive capital.

In the crowdfunded market, businesses can offer their company for investment to an unconstrained market of retail, private equity, venture capital and institutional investors. Businesses can also receive loans from crowdfunded investors. These investing activities transact through an internet finance platform operated by a crowdfunded internet finance provider that connects companies with investors at low costs to both parties due to the minimized cost structures achieved through internet finance operations.

Overall, small businesses have a growing number of options from which to choose when raising capital at all stages of financing. In Series B financing, companies can select new financing methods that better fit their current situation or repeat similar funding methods as used in Series A financing.

Real World Examples of Series B Funding

In February 2019, Mountain View, California-based robotics company Nuro raised $940 million in a Series B round from the SoftBank Vision Fund – giving it a valuation of $2.7 billion post-raise. The company, founded in 2016, previously raised $92 million in Series A funding co-led by Gaorong Capital and Greylock Partners.

Zoox, a self-driving technology development company founded in 2014, raised $500 million through Series B funding in July 2018. The Series B funding round was led by Mike Cannon-Brookes of Grok Ventures and gives the company a $3.2 billion valuation. In total, Zoox has raised $800 million.

Founded in 2017, Devoted Health raised $300 million through Series B funding in October 2018. The Waltham, Massachusetts-based insurance startup secured the funds from lead investor Andreessen Horowitz, Premji Invest and Uprising. Devoted Health serves seniors and aims to launch Medicare Advantage plans in 2019.