Series A, B & C Funding Definition
As far as my understanding different series of funding happens at a different levels and stages of a company but just to have a clear understanding about these terms I am posting this question. Any Advice?
I've able to collect some data s over the internet but a professional advice is required to make it more clear.
Thanks in Advance
Clarification added April 20, 2010:
Lemme share MY understandings regarding these terms
Series A round financing happens after some success has been proven in the market (local test market, unique technology able to be valued, superior business plan and go-to market strategy, etc)
Series B and C are growth stage financing rounds, used to prepare companies for their exit or acquisition strategies - either capturing market share, refining product or purchasing similar companies
Correct me if I am wrong and Sincere Appreciation for your Inputs
Thanks
Good Answers (4)
Thane G.
Corporate Strategy and Corporate Development at JBT Corporation
Best Answers in: Venture Capital and Private Equity (2), Business Plans (1)
Though there is no real rule to what a round of external financing is called (some are Series A-1 or A-2), I think the conventions are reasonably clear.
Series A financing is generally the first major round of financing from external investors and the investment vehicle is generally called "Series A Preferred Stock". Preferred stock is stock that that has special rights that common stock does not have (like anti-dilution, information rights, etc.). Series B represents the second round of external financing and so on.
The "Series" label is simply a name for the class of preferred stock (and associated terms) being offered with a particular round of financing. First round (Series A Preferred) investors often have different terms than second round (Series B Preferred) investors (most notably the price of the stock), so this convention is used to indicate which class an investor owns.
While you are somewhat correct in your correlations of a company's growth stage to the round of financing typically associated with that growth stage, the two are not necessarily precisely connected in the way you have communicated. Often companies have to use Series B and C rounds while they are still proving the venture. A company's external financing needs and when this financing should occur is dependent on a lot of factors (type of business, growth plans, marketing strategy, etc.) so think of the "Series" as simply telling you how many rounds of external financing are present in the business but not necessarily the developmental phase the company is in...
Thomas H.
Owner, Thomas E Healy CPA PC
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These aren't terms that have "official" definitions. They are merely shorthand descriptions of the stages in the process of obtaining capital or long-term debt to finance a company. The initial funding is usually from "family, friends, and fools." After the company shows some success, it's time to court "angel investors." These are people who want to help a company get to the next level of operation, which usually requires quite a bit of capital. They may take common stock, preferred stock, or loan funds to the company (often a combination). They may also bring expertise to the company. This is the stage that may be effectively shut down if some provisions in Senator Dodd's bill become law, because those provisions would force such companies to (a) register with the SEC and with all states in which angels live, (b) wait 120 days, and (c) be able to court many fewer angels, because the "accredited investor" threshold would increase from $1,000,000 to $2,300,000.
If the company gets past that stage, it may be time for an initial public offering or a buyout from another company.
Hi Sadan,
As Thomas mentioend, there are no offical definitions. I can share with you what we at ePlanet view as Series A, B and C. I should mention that each VC will have a different definition:
Series A, Venture Stage:
Milestones:
Large market
Exceptional mgmt
Product / tech validation
Rev traction
Total Investment amount: <$2MM
Series B
Milestones:
Large market
Exceptional mgmt
Rev.: >$5MM
Biz model validated
Path to breakeven
Total Investment amount: $2-10MM
Series C
Milestones:
Large market potential
Exceptional management and execution
Revenues: >$20MM
Growing profitability
Total Investment amount: $10-25MM
Hope this helps.
Rupam
Like Thomas said, there is really know straightforward answer. To understand this one needs to understand the various stages in the lifecycle of a business.
Development Stage:
Screen Business Ideas
Prepare Business Plan
Obtain Seed Financing. This is usually from Friends, Family, Founders
(or Fools as people joke about)
Startup Stage:
Choose Organizational Form
Prepare Initial Financial Statements
You are correct in your understanding that you now have a valid
technology, prototype or some test market
Obtain First Round Financing (Series A or Angel Investors)
Survival Stage:
Monitor Financial Performance
Project Cash Needs
Obtain First Round Financing (Series A or B). The reason why I mention
Series A is because this could also be based on the size of capital and
the nature and size of your business at that time.
Rapid Growth Stage:
Create and Build Value
Obtain Additional Financing (Series B or C or Mezzanine)
Examine Exit (M&A) Opportunities or Acquire
Maturity Stage
Manage Ongoing Operations
Maintain and Add Value
Obtain Public or Seasoned Financing
The key here is that as you progress through these stages you need for capital would increase, but the risk would be reducing since your company is gaining momentum and adoption.
I hope this helps.
Nitin P. also suggests these experts on this topic:
More Answers (3)
Alicia C.
Wealthing(R)
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As everybody has said, there is no 'standarized' definition...
From a strategic point of view, having a series means that the founders know or have someone close that knows that the risk of the business is managed over time and experience, so it is either scheduling equity investments to capture the shareholder value OR has run out of money and needs to show that it has previous experience in raising and managing equity investments.
A drug developing firm might schedule different shares to reflect upon the stage of the business, a local retailer that would stay small might not need to show that difference and might therefore choose not to have a series at all.
hope it helped.
Alicia
John S. R.
Hallym University
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Good day Sadan,
The enclosed links are good (VC) resources that you might find useful.
Regards,
John S. Rajeski
Links:
Kapil K.
Business Consultant l Social media marketing l Facebook applications l Drupal Services l Software/Website develoment
@ rupam, liked your answer, can you send me your email ID would like to discuss few things with you, my email ID is kapilkhanna81@gmail.com
