Series C funding is a company’s third injection of investment capital from outside sources. By this time, the business is a “young mature” whose owners have convinced venture capital firms or other institutional investors that they have a viable business and the investors are generally encouraged about its long-term odds of success.
In the Beginning
Entrepreneurs generally start with an idea and seed money that can often come from a mix of life savings, personal credit cards, and modest investments from family and friends. With this sum, they begin to test their ideas in the marketplace and attract outside investors. Start-up financing, also known as Series A funding, launches the business. That initial boost from angel investors or venture capital firms lets the new business hire additional staff, acquire assets and start to expand. Series B funding indicates further confidence in the business model and growth pattern. With each round, the company will be revalued, with investors paid with shares in convertible preferred stock rather than common stock. One advantage to investors is that preferred shares can’t be diluted in subsequent rounds of investment.
By the time entrepreneurs have successfully negotiated a Series C round of financing, the company has begun to mature and prove itself in the marketplace. Venture capital firms that specialize in Series C funding are investing to make the business appealing for acquisition or to support a public offering. Because the company will presumably be more valuable with each round of financing, outside investors will likely pay more and get a smaller slice of the business in return compared with previous investors in earlier rounds.
The Next Stage
Some companies go well into the alphabet with additional rounds of funding even after Series C. This is in addition to the stabilizing lines of credit obtained from commercial lenders for day-to-day operation. Once the company has survived after these milestones of growth — seed money and at least three long, hard looks from outside investors — the company might be ready to be acquired or to go public. This is the point at which it's growing so quickly that the company's financing needs exceed its borrowing capabilities and even the deepest pockets of investors. Or the venture is so successful that the most lucrative next step is to conduct an initial public stock offering to raise capital.
With each round of investment, the original business owners give up more of the company, further diluting their own position and power. However, the company has grown at this point and become more valuable with each stage of financing. After Series C funding, the original owners hold a smaller slice of a larger company, but, as ground-floor investors, their shares have ideally increased considerably in value. So while there are more partners and investors to answer to, and major decisions likely can't be made as swiftly or independently as in the past, the owners' net worth has increased, perhaps significantly.
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