Series C Funding is the third major investment round in the funding series. This will be the first of the later stage investments. It need not necessarily be the last. Some companies will go around to have a Series D funding and so on in the alphabet.
This could be due to either need a final step before reaching the Initial Public Offering or have not met the goals that were set for Series C funding.
Series C Funding
Series C funding is also a tool to increase the valuation of the company for the Initial Public Offering.
Initial Pubilc Offering
A public offering is a process by which a private company becomes public. It does so by making shares from the company available to the public in the market. After an IPO, the companies shares will be available to be traded in the market. Reaching the Initial Public offering stage is seen as a final milestone for a company in the race. Once the company is public, it is deemed as a super successful business.
Series C Funding as an indicator :
Technically, Startups that seek Series C funding cannot be called startups. The startup has established itself as a company. These companies are successful and well established in reference to later-stage investments. The company is earing and good revenue and a substantial net profit. The product is well known and appreciated in the market. The company has a consumer base, and it is also an expanding one.
Since the company is already is established, and relatively stable, the inflow of investors is more. This can be associated with a reduced risk since the company is profitable. The chances of the company becoming a defaulter are very low.
The companies at this stage are at a high valuation. Hence, the investments that come are also at a higher ratio than the previous ones. The investors will be willing to come out and play. The prices that they will be willing to pay for the company’s shares will be enormous. Unlike the previous rounds, the kinds of investors in Series C Funding will be different. Series A and B Funding are associated with venture capitalists, and angel investors, whereas Series C funding will engage with larger financial institutions such as investment banks and hedge funds. This does not mean that venture capitalists do not participate in the Series C funding round. Since the company is more valuable, the investors will be paying more for a smaller part of the company.
What is Series C Funding?
As the names in the series suggest, Series A funding stands for Anchor. Series B funding stands for Build. Using the same concept, in Series C funding the ‘C’ stands for Scale. As can be seen from the explanations above, the objective of Series C Funding is to scale. The company is established. It has climbed the ladder from being a startup to a company1. The breakeven point has been left behind. The company isn’t just earning revenue but also a net profit. The company has carved a consumer base, and there is a place for it in the market. All the considered milestones of successful have been crossed. C funding only wants the percentage of that success to become higher.
In simplest terms, the net profit should increase. The capital gathered form Series C would be divert to the same. This can be done through entering new markets, expanding on product surveys and research, and acquisition of new companies.
As the company keeps growing and allowing more investors to enter the business, the company is getting diluted. The founder is giving up more of his authority in the decision making process in exchange for capital investments for growth. As more and more stocks from the company are sold, the more power stockholders gain. The founder holds a much smaller part of the company in comparison to the beginning. However, as the original investors, the value of that share has increased multifold.
To gain a better understanding of this, let us use the example of Stark Industries from the Marvel movie collection. While Tony Stark is the founder and has the most important decision-making authority when he wants to stop the production of weapons, he cannot do so. This is because the investors are not on board with this decision.
Acquisition of New Companies
Acquiring new companies is one of the most successful methods of scaling in terms of Series C. The method can kill two birds with one stone. Say a company, X is doing very well in its scope of business. It has expanded, reached a consumer base, and is looking for a Series C. There is another company, Y that plays in the same scope of business. It is also doing very well for itself. Y is looking to invest somewhere as Series C Funding as well. Since both, the companies play in the same scope of business they are competitors. If Y buys X, then they each receive Series C Funding that they were looking for and the competition ceases to exist. This will be because the benefit to either company is beneficial to the other.
For example, Cristiano Ronaldo plays for the football club, Juventus and Lionel Messi plays for the football club, Barcelona. Both the clubs are superior teams in theory. Both culbs are winning in different leagues. This is attributed to these two players who are undefeatable. If one of these clubs were to offer a contract to either of these players and put them on the same team, that club would be undefeatable anywhere. The net worth value of the club would increase by multi-folds, and the competition would cease to exist.
Series C is the last milestone towards reaching Initial Public Offering. The company, at this stage, is already doing very well for itself. Let us all hope that it is on the way to acquiring Series C and boundless profits thereafter.
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