Series B financing is one of the stages in the capital-raising process of a startup, along with Seed and Series A and C. It generally takes place when the company has accomplished certain milestones in developing its business and is past the initial startup stage. Therefore, this financing is appropriate for companies that are ready for their development stage. The company has to have shown some strong achievements after its Series A round.
In Series B investors provide capital to a company in exchange for the latter’s preferred shares. The majority of the deals include anti-dilution provisions like in the series A. This means that a company usually sells preferred shares that do not provide its holders with voting rights. Consequently, it supports the company’s growth to the next level.
Companies can seek various ways to raise funds in a Series B financing round. It can come from private equity investors, venture capitalists, and credit investments. Moreover, investors from previous financing stages can increase their stake, or help attract new investors into the company. These have a chance to see how the management team has performed and whether the investment is worth it or not. New investors commonly purchase the shares at a higher price than the investors who injected their money in the previous stages of funding. As a result, Series B financing tends to have less risk associated with it versus Series A financing. However, Series A financiers get in at a lower share price to help compensate for that risk.
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