Startups
Jun 7, 2024

What Are Series C Startups and How Do They Work?

If you’re a young entrepreneur who doesn’t have a clue about Series C funding rounds or who are those VCs everyone talks about, you’re not alone.

Most startup founders don’t know much about the details of the world of finance, they just have a bright idea they want to develop.

In this article, we’ll give you all the details of what Series C startups are and how they work.

Also, you’ll find out who is granting the funds to develop a startup and what other types of funding rounds exist. Enjoy!  

What Are Series C Startups?

A Series C startup represents a critical stage in the lifecycle of a young company, marked by significant growth across all areas, from the number of workers to more customers and profitable products.

It is the third round of funding, following the seed round and the subsequent round.

Series C funding is pivotal for startups as it often finances their long-term goals, giving them the funds to solidify their position on the market.

By extension, this is usually the most significant funding round a startup company can receive, with some raising over $100 million from different venture capitalists.

Companies that receive Series C funding are expected to demonstrate strong product-market fit, a sustainable business model, and significant revenue growth.

If in seed funding or pre-seed funding, companies can work on a loss; Series C companies should already show profitability and growth.

Compared to other rounds, there are no angel investors or small VCs.

Series C funding rounds are sponsored by big investment banks, private equity firms, hedge funds, and large corporate investors with billion-dollar portfolios.

In terms of money usage, most companies that raise funds in a Series C round use it to fuel growth, strengthen their competitive position, and defend against potential market disruptions.

They usually eye an international expansion, the acquisition of a bunch of complementary businesses, or the development of a whole new line of products.

Not many companies reach this funding stage. Only one of ten early-stage startups will grow big enough to get a Series C funding round.

The biggest-ever Series C funding round was received by JD.com in 2011.

The company raised over $1.5B from companies like Tiger Global Management, Sequoia Capital, and Walmart.

What Are the Stages of Investment Rounds?

Here are the five most important funding rounds for a company:

Seed Round

Seed funding is the initial stage where startups raise capital to bring their ideas to life.

Typically, this round involves angel investors or venture capitalists providing funds for equity.

Seed funding helps validate concepts, develop prototypes, and prepare for larger rounds.

Most startups that aren’t sustainable and can’t compete on the open market die after receiving this round of funding.

Series A Funding

Series A is the first significant round after the seed round.

Usually, the seed money is used to start the prototyping process, while the Series A funding is aimed at scaling operations, marketing, and expanding the customer base.

Investors in Series A seek evidence of market traction and a solid business model that can become profitable in the future.

Series B Funding

This type of funding usually comes right after a Series A round.

Companies that do well on the open market receive additional funds to accelerate their growth, bring in more staff, and expand operations in other areas or cities.

After this round, investors expect growth and a clear path to profitability.

Series C Funding

Series C rounds are for mature companies with proven track records.

No investment bank or venture capitalist will ever grant a Series C funding round to a startup that hasn’t turned profitable or shown clear signs of success.

The capital raised here supports global expansion, acquisitions, and fine-tuning of strategies. Investors look for profitability or a clear path to it.

IPO or Initial Public Offering

An IPO is the culmination of a company’s funding journey, transitioning from privately to publicly traded status.

This offers an exit strategy for early investors and allows the company to raise significant capital from the public markets.

An IPO means the company takes its shares on the stock exchange, allowing everyone to invest.

What Are Venture Capital Firms and How Do They Work?

Venture capital firms are financial institutions that provide capital to startups and early-stage companies.

In simple terms, VCs provide startup funding in exchange for a chuck of the company they are selling at a later profit.

Their primary objective is to identify promising businesses with high growth potential and offer them financial support and social power.

Usually, VCs are not only helping them with money, but also with influence and clever behind-the-stage games.

Here are the exact steps they take to ensure a company turns profitable for them.

Fundraising

If you thought VCs use their money to fund startups, you’re mistaken.

They are just collecting the funds from smaller sources like high-net-worth individuals and pension funds and pooling them together into a dedicated investment fund.

Investment Focus

VCs are usually focused on specific industries or branches.

For example, Anderssen Horowitz specializes in tech, while Sequoia Capital can invest in fintech or health.

This way, the company grows an influence in a specific field.

Due Diligence

Before making a decision, venture capital firms meticulously evaluate the startup’s team, business model, market potential, competitive landscape, and financial health.

They complete different financial models of the industry, make graphs, and assess the possibility of the given startup to enter the market.

Investment Round

After deciding on the company they want to invest in, venture capital firms contact the upper management and propose an investment round.

Depending on the size of the company and its market valuation, it could be a seed round, Series A, or even a Series C funding round.

The terms of the investment are negotiated, including the amount of capital invested and the equity stake obtained in return.

Exit Strategies

After the supposed company grows big enough, it’s time for the VC to sell its stake and receive the much-awaited profit.

Common exit options include initial public offers, mergers and acquisitions, or secondary market sales.

If the exit strategy is successful, the money invested can double or even triple.

How Can You Launch A Startup and Get to a Series C Investment Round?  

Here are the main steps in your journey to get your startup up and running well into the series C funding round:

Market Research

You should never start a business without the necessary due diligence.

Watch the market, compare the profitability of companies in different industries, and decide where it would be easier for you to enter.

You can also compare your abilities with the market’s needs.

For example, if you are a talented software developer, why not enter this market and develop a whole new product from scratch?

The same goes for every industry there is.

You just need to find the right spot for you, crunch some numbers, and start working.

Develop a Business Plan

Nobody will ever give you a dollar without a well-defined business plan or at least a breakthrough idea.

After the crash of 2007 and the recession of 2022, investment funds have less and less money lying around, which means your chance of scoring big is slimmer than it was before.

If you want your idea to work, develop a detailed business plan.

Compute the rough cost of your product, for how much you want to sell it, the other costs affiliated with your business, and the profit you should make out of it.

If everything works out alright, your seed stage is not that far.

Get the First Funding Round

Seed-funded companies don’t live too long, so you must be quick.

After you receive your first money from an angel investor or a small VC fund, turn it into a better product and hire a more capable team as fast as you can.

Don’t spend it on cars, huge offices downtown, or any other luxuries. Remember, the business comes first.

If you have a strong competitive advantage over your peers, pour all the money into the development of that advantage.

You want to be the first, the best, or the only one on the market.  

Use the Money to Build Viable Business Operations

You don’t want to stop here, so use the money to expand your business operations.

Depending on how much you’ve got, try to expand to other cities or areas of your city.

Attract new clients, invest in a better product, or develop a new line.

All these moves will help you grow and become a viable business with a loyal customer base and a steady influx of money.

Pro Tip: Always think about being profitable. You’re not in the business of bright ideas; you’re in the business of making money.

A startup must become a profitable company, or else what is the reason to even start it?

Get More Money

If you’re doing great, it’s time to start looking for new investors.

You can take several routes from here, starting with equity crowdfunding and ending with institutional-grade funding rounds involving top-ranking investors.

From here, you have to invest in the expansion of your company.

Perhaps an international debut or a massive acquisition of a rival company can help you become the top dog of the industry you’re trying to dominate.

While more capital means more opportunities for expansion and profit, it also means that you’ll have less and less equity in your company.

That’s why, before taking this route, think about the consequences.

Frequently Asked Questions

Where Do Companies Get Their Funding Rounds?

Companies get money from venture capitalists, angel investors, and private equity firms. Crowdfunding is another source of funding.

Companies may also secure through loans, grants, or partnerships, depending on their needs and stage of development.

Bigger companies can receive money from investment banks.

Why Do Companies Need Funding Rounds?

The funding rounds are used to finance interesting and innovative ideas.

They support growth, competition in the market, and navigating financial challenges.

These rounds also enable founders and early investors to cash out and bring in new supporters later in the company’s life.  

Wrapping Up

Now, you know everything about a Series C startup funding and how it works.

Use this knowledge to launch your own startup or try out your hand at someone else’s innovative startup idea.

If you are one of those who has started a successful company, don’t forget to share your experience in the comments.

Also, don’t hesitate to share this article with one of your friends who wants to try their hand at startup life!