Preparing for Series B in 2023

A series B fundraising is the first opportunity for a company to raise capital from investors after having completed its series A round.

The Blackroom Team
The Blackroom Team

A series B fundraising is the first opportunity for a company to raise capital from investors after having completed its series A round. Depending on the stage of development, this type of financing can be used for various purposes:

  • to accelerate growth (product launch, geographic expansion, hiring new employees...);
  • to develop new services or products;
  • to fund the establishment of additional sales channels;
  • to finance acquisitions (mergers, takeovers).

In today’s context, all those growth targets will have to be backed by a solid plan when it comes to profitability. Both top lines and bottom lines need to be addressed in parallel. 

Series B’s investors expect more. Founders have to demonstrate they can handle acceleration and scale at a global level. 

The criteria for assessing the possible success of a series B in 2023 are market size, management team, customer base, product quality, distribution channels and financial results.

Here are examples of a few key talking points you can use in your pitch.

Management Team: Our company has a great leadership team with experience in sales and marketing. The CEO has been working at the company since its founding. We also have a chief technology officer who has been with us since 2017. They are both very experienced in their respective fields and we feel that this will be an asset to our business as it grows into its next phase.

Customer Base: We currently have over 500 customers using our platform on a daily basis and we look forward to increasing this number over time as more businesses adopt our software solutions into their businesses' operations systems.

Product Quality: Our product is easy-to-use while still providing all necessary functionality needed by users at all levels within an organization's hierarchy structure (from entry level up through executive management). This makes it ideal for any company looking for solutions that ensure compliance with industry regulations while improving productivity across departments at all levels within their organization's structure.

Don’t underestimate the time you will have to spend on uplevelling your pitch. As you can see below, global late-stage VC activity slowed down since H1 2022 after a record-setting 2021.

Source: dealroom.co

Regarding the market size, the investors expect an addressable market of at least 1 billion dollars in revenue. 

This can be achieved by being active in a niche very well targeted or by being generalist and active in different countries.

The size of the market is a key factor for investors. They want to see growth potential and a large addressable market that you can take advantage of. As an example, let’s say you are targeting a niche in Indonesia with people making less than $1,000 per month and can make an impact by selling your product for $10 each since most people don’t have access to credit cards or loans. This would not be appealing to investors because there aren’t enough people in this category to sustain business activities (the addressable market starts at about 15 million potential customers).

However, if you are targeting business owners with more than 100 employees who earn over $10k/month, then this could be appealing because it gives them options like renting or hiring someone instead of buying something themselves (so they pay higher prices).

The investor expects that your core product should be scalable across countries and languages as well as industries so they expect this when considering investing in companies without any specific data points available yet (e.g., how big will your US expansion plan look like?).

A strong management team with experience that allows it to manage growth is essential. 

Co-founders must demonstrate the ability to adapt their company's business model if necessary while remaining committed to their long-term vision.

A series B investor will expect to see the following from a founder:

  • An ability to clearly communicate strategy, goals, and milestones for the company's future
  • A demonstrated history of building out a successful product or service offering in a timely manner
  • A willingness to take risks and make tough decisions when necessary

A large customer base will reassure investors who will consider you as a leader of your sector. It reduces the uncertainty about the future of your company since investors will find it easier to trust your company due to its proven track record with customers.

Your products or services must be useful for them and users should be satisfied with what they are getting from you. The better their experience, the more likely they will be willing to develop a long-term relationship with you and even recommend you to others if needed.

Revenue is not enough, recurring revenue is of value

The product quality must be high because it is an essential condition for customers to want to renew their subscription and thus generate some recurring revenue that is needed for the series B fundraising.

In this case, we will discuss how to improve the quality of your product by using agile methods.

This strategy consists of three levels:

  • Release early and often (iterations)
  • Automate everything that can be automated (automation)
  • Learn from each other (communication)

Channels for distributing services and products widely (for example multiple sales channels) must be available so you need to demonstrate your expertise in targeting your customers through different touch points (online, offline, direct sales, e-commerce...). These are critical because they allow you to reach more people quickly while optimizing costs and time.

Conclusion

The last factor is critical because it allows the investors to evaluate how scalable your company is and how much money they will make on their investment by selling their shares at a later date. This translates into a valuation of your business which is necessary for determining how much capital you will get when fundraising.

As you can easily understand, lots of efforts will be necessary to convince investors to back you up. But these topics are of critical importance if you want to succeed. Another important factor will be the professionalism you show and how structured your business is. Structuring a data room to share your documents and centralize your fundraising process can be a great way to demonstrate to your investors your ability to take your business to the next level.

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