Series C financing (also known as series C round or series C funding) is one of the stages in the capital-raising process 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 shares. 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 development, or acquisitions of other companies.
Many investors from previous financing rounds (venture capital firms and angel investors) 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.
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