Series C Financing: A Comprehensive Guide for Startups

Series C financing (also known as series C round or series C funding) is one of the stages in the capital-raising processCapital Raising ProcessThis article is intended to provide readers with a deeper understanding of how the capital raising process works and happens in the industry today. For more information on capital raising and different types of commitments made by the underwriter, please see our underwriting overview. by a startup. The series C round is the fourth stage of startup financing, and typically the last stage of venture capital financing. However, some companies opt to conduct more rounds, such as series D, E, etc.

How Does Series C Financing Work?

Similar to previous stages of financing, the series C round primarily relies on raising capital through the sale of preferred sharesPreferred SharesPreferred shares (preferred stock, preference shares) are the class of stock ownership in a corporation that has a priority claim on the company’s assets over common stock shares. The shares are more senior than common stock but are more junior relative to debt, such as bonds.. The shares are likely to be convertible shares. They offer holders the right to exchange them for common stock in the company at some date in the future.

Strictly speaking, companies that aim to obtain series C funding are no longer startups. They are usually established, successful companies in their late stages of development, with solid revenues and profits. Their core products or services generate strong demand in the marketplace, attracting a substantial customer base.

Companies seek series C financing for further expansion to reinforce their existing success. Following a series C round, a company aims to scale up its operations and continue its growth. The proceeds from this financing round are most commonly used for entering new markets, research and developmentResearch and Development (R&D)Research and Development (R&D) is a process by which a company obtains new knowledge and uses it to improve existing products and introduce, or acquisitions of other companies.

Key Players

Many investors from previous financing rounds (venture capital firms and angel investorsAngel InvestorAn angel investor is a person or company that provides capital for start-up businesses in exchange for ownership equity or convertible debt. They may provide a one-time investment or an ongoing capital injection to help the business move through the difficult early stages.) tend to participate in the series C financing round as well. The players can opt to inject additional capital in the company and attract new investors.

This round of financing often attracts new players as well. Unlike the previous stages of financing in which most investors are venture capitalists and angel investors, large financial institutions such as investment banks and hedge funds are willing to participate in the series C round. This can be explained by the lower risk associated with the investment, since the company is already established and relatively successful. The chances of the company’s default at this stage are relatively low.

Note that companies at the later stages of development generally come with high valuations. Thus, potential new investors are likely to pay high prices for the company’s shares.

More Resources

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™Become a Certified Financial Modeling & Valuation Analyst (FMVA)®CFI's Financial Modeling and Valuation Analyst (FMVA)® certification will help you gain the confidence you need in your finance career. Enroll today! certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

• Debt vs. Equity FinancingDebt vs Equity FinancingDebt vs Equity Financing - which is best for your business and why? The simple answer is that it depends. The equity versus debt decision relies on a large number of factors such as the current economic climate, the business' existing capital structure, and the business' life cycle stage, to name a few.
• Equity Capital MarketsEquity Capital Market (ECM)The equity capital market is a subset of the capital market, where financial institutions and companies interact to trade financial instruments
• Seed FinancingSeed FinancingSeed financing (also known as seed capital, seed money, or seed funding) is the earliest stage of the capital-raising process of a startup. Seed financing is a type of equity-based financing. In other words, investors commit their capital in exchange for an equity interest in a company.
• Startup Valuation MetricsStartup Valuation Metrics (for internet companies)Startup Valuation Metrics for internet companies. This guide outlines the 17 most important e-commerce valuation metrics for internet starts to be valued