Successful multi-million companies often have humble beginnings. But if you are reading this and are well on the way to receiving C-stage funding, the J curve might seem like a distant memory. You are now moving into new markets and considering acquisitions: Just a rocketship searching for its rocket fuel.
We previously discussed Series A and B funding, but Series C+ gets slightly more complicated. Established companies with larger-scale operations looking for this late-stage funding attract a plethora of firms and individuals: late-stage venture capitalists (VCs), private equity firms, hedge funds, banks, and early stage VC funds.
A relatively low number of startups make it to this point, meaning the amounts raised also vary hugely and are determined on a case-by-case basis. Other companies may take their fundraising to Series E (or beyond) before being acquired or going public — and the truth is, there’s a ton of flexibility when you’ve reached this stage.
Although VC funding to US-based companies thrived despite the pandemic, late-stage funding VCs are getting pickier: They are preparing their portfolios for expected inflation and rising energy, food, and healthcare prices.
So, before diving head-first into another funding round, this third post about Series C funding will outline the current landscape of late-stage venture capital, which investors are interested in Series C+, what industries catch their attention, and what to expect in the future.
Active Investors in Late-Stage Funding
Fun fact: Investors from previous financing rounds also tend to participate in Series C+.
However, perceived risk levels impact the types of investors attracted to a deal. That’s why early-stage investments often attract risk-loving angel investors and VC firms. But risk-averse large financial institutions, like investment banks and hedge funds, only jump on the bandwagon for Series C+, as companies at later stages of development have higher valuations.
All of these late-stage investors are hunting for one thing: companies that have serious traction. With few startups making it to this stage, there is an ample supply of capital to go around. That’s why mega-round funding always attracts specific investors wanting a slice of the pie. Here are some of the top investors interested in late-stage companies:
- Tiger Global Management: An investment firm focusing on private and public companies in the global internet, software, consumer, and payments industries. It’s the most active investor not solely for Series C but for D and E rounds too.
- Gaingels: A leading LGBTQIA+/Allies investment syndicate and one of the most active private investors in North America. Dedicated to supporting diversity at all levels within the venture capital ecosystem and influencing social change through investing. Portfolio includes: Bolt, Udemy, and Masterclass.
- Insight Partners: A private equity firm based in New York City investing in growth-stage technology, software, and the internet. Portfolio includes: Shopify, Wix, and Shutterstock.
- Andreessen Horowitz: A private American venture capital firm in California investing in early-stage startups and established companies. Portfolio includes: Airbnb, Affirm, and Asana.
If you want to get more specific, Crunchbase recommends six technologies to help you find investors ready to support companies like yours: Gust, Crunchbase Pro, LinkedIn, Pitch Investors Live App, Microventures, and WeFunder.
You may also be based in a specific state like California or Texas and wonder who your state’s most active VC investor is. Check out this map to suss them out.
Source: CB Insights
The ABCs of Funding Rounds and Beyond
Once a business has a track record, it may seek Series A funding (between $2 to 15 million) from traditional venture capital firms or angel investors to optimize offerings and scale across different markets. Companies seeking Series B funding from later-stage VCs are past the development stage. They want to grow fast and build a winning product.
Companies that aim to obtain Series C funding are no longer startups, unlike Series A and Series B, where this is often the case. They are usually established and thriving with solid revenues and profits, often with a valuation between $100 and $120 million. With the explosion of “unicorn” startups, though, they can be worth more.
However, independent of valuation, there are similarities to the previous stages of financing: they all primarily rely on raising capital through the sale of preferred shares.
Series C funding is the fourth stage of the startup capital-raising process – typically the last step of venture capital financing to prepare a company for its initial public offering (IPO) or acquisition.
However, some companies opt to conduct more rounds for a final push, such as Series D, E, or beyond. There are a couple of reasons for this:
- The Series C funding didn’t hit expectations, and this “down round” devalued company’s stock, so it is better to wait before seeking an IPO.
- The company has discovered a new opportunity for expansion that would increase its value before going public.
The Future of Financial Sourcing
According to CB Insights, the median deal size is currently down. But after the past few years, it’s not surprising: During the pandemic, safe-haven assets rose. However, we gradually expect investors to rebound from the economic hardships like most other industries.
Source: CB Insights
We also anticipate late-stage investors to become pickier than before as investment portfolios continue to be affected post-pandemic. This is clear as early-stage rounds are heavily dominating investments currently. This is also because few companies make the Series C stage.
Source: CB Insights
Despite previously getting your ducks in a row for Series A and B funding rounds, Series C can still feel complicated. There’s also a lot of pressure, with a tight focus on scaling and growing as quickly as possible. But it’s all worth it. This funding may be the final push you need to roll out some game-changing innovations in your company.
At Founder Shield, we specialize in analyzing company risks at each development stage or round of funding and take the stress out of buying insurance. We ensure you always have adequate protection so you can worry about other more pressing matters.
Want to know more about Series C funding? Read the rest of our series here.