Series B funding: guide for startup founders

Series B funding – if you’ve made it here, you’re playing in the big leagues. You’ve made it through Pre-seed, Seed, Series A and now you’re on to your second round of venture capital funding. Your business is likely thriving and you’re ready to expand – big time. 

In this article, we’ll cover the definition of Series B funding, how it works, how to raise a Series B round, and the challenges associated with it. We’ll also recommend some VCs in London you could approach for Series B funding. Let’s go. 

• What is Series B funding?
• How to raise a Series B round
• The legal documents you’ll need for Series B
• Where to find Series B investors
• Top investors at Series B
• The challenges of Series B funding
• Alternatives to Series B funding

What is series B funding?

Series B funding is generally the second round of venture capital funding and the next step after Series A (read Series A funding: guide for startup founders).

By the time your company is ready to raise Series B, you’ll have usually:

• grown your team to 50+
• found product-market fit
• started expanding your offering
• acquired majority market share locally

The amount raised during a Series B round is usually £10m – £50m. To raise this amount, your company valuation for Series B funding could be from £35 million up to as much as £1 billion, especially if you’re raising in the US.

The money raised at Series B is often used to:

• expand internationally
• acquire the majority share of your target market
• increase revenue substantially
• build your team to 100+
  

A series B round commonly lasts 6 to 12 months, and 3 months at a minimum. 

Series A vs Series B

The way Series A and Series B funding rounds work is largely the same. There are two key differences between Series A and Series B:

1. the amount of capital you raise – you’ll raise a much higher amount in Series B
2. the complexity of the deal – your legal documents will likely require more nuance because the investment amounts are greater

How to raise a series B round

Before you start raising Series B funding, it’s important to get everything in tip-top shape so your company looks attractive to investors.

To get investment ready and begin your Series B round, you can follow the steps below. Every company has a unique journey, but these are the usual steps: 

1. Prepare your pitch
   Create your slide deck so it’s ready to send to potential investors.
   On SeedLegals, you can create a free Pitch page with your company details, fundraising goal, pitch deck, team profiles and more. You can share the link with investors, and you can be discovered by new investors – read How to grow your investor network with Pitch to learn how it works. 
2. Prepare your Term Sheet
   Often, when a VC is interested in investing in your company, they’ll send you their term sheet. However we recommend you prepare your term sheet before you meet investors so you can be ready to send it if they show interest in your pitch.
3. Get a valuation
   Unlike in earlier rounds, your valuation will be almost entirely dependent on your growth and revenue numbers, as well as the potential size of the acquirable market. Typically we’d expect to see 7-15x ARR (Annual Recurring Revenue) in the UK, although these numbers vary widely industry to industry.
4. Research and approach investors
   Make space in your diary – this step can be very time-consuming. Get word out that you’re raising and set up meetings with investors. See below, Where to find Series B investors
5. Pass the Investment Committee (IC)
   It’s one thing to get in the door. The next step is to work your way up the chain of command (or even better, skip a few steps with a warm intro) and impress the decision-makers. Then it’s time to work on the deal.
6. Negotiate the Term Sheet
   It’s unlikely you and potential investors will agree immediately – negotiation is a necessary part of the process to make sure everyone is happy with the deal. When you raise your Series B round, the deal terms are likely to be complex so you’ll need to work with an experienced venture capital lawyer. 
7. Complete investor due diligence
   At Series B, investors will check every detail carefully. Be ready to work with the due diligence team to share your files and data. With SeedLegals, you can give investors access to your Deal Room where you can upload the files they need.
8. Sign the documents
   When the Term Sheet is agreed, you and your investors will move forward to sign the required long-form legal documents. 
9. Receive the money
   After all parties have signed, your investors send you the money. Then you’ve officially closed the round. Congratulations!

After the round has closed, the goal is to scale, scale, scale. Ask yourself what you need to do and who you need to hire to turn your company from an £80m company to a £1 billion company. Work with your investors, finalise the plan, then get your head down to hit the numbers every month until you find yourself ringing the bell at the stock exchange.

The legal documents you’ll need for Series B

The legals in a Series B round are far more bespoke and heavy-weight than a Seed or Series A round. You’ll most likely need to work with an experienced venture capital lawyer and the legal fees can often be as high as  £100,000+. 

The main funding documents you’ll need for your Series B funding round are:

• Term Sheet
• Shareholders Agreement
• Articles of Association
• Disclosure Letter
• Previous Investor Consent
• Preemption Notice
• Board Resolution
• Shareholders Resolution
• SH01 Form

Where to find Series B investors

The best place to start finding investors for Series B funding is by reaching out to your Series A lead investor to ask about other companies they co-invest with.

Given how big these rounds can be, most of the major Series B+ players can be found after briefly scrolling TechCrunch. While there are firms in every geography, many are found in Silicon Valley, so it may be worth buying a plane ticket and attending a few events and conferences out there. 

Here are a few more ways you can meet Series B VCs:

• Get referrals from your contacts
  Your existing investors, advisors or customers might be able to put you in touch with VC investors. Also it’s worth asking fellow founders at a similar or later stage to see if you share potential investors. 
• Go to demo days, pitch events and investor conferences
  Sign up to pitch at a networking event or competition, or simply attend the event to meet investors over networking drinks.
• Make a noise on social media
  Post about your successes, launches and partnerships. Make sure you’re a regular and interesting presence on LinkedIn, Twitter and other communities for investors and startups. If your company has a strong presence and reputation, it’s more likely investors will message you.
• Investigate and approach VCs
  Use Google or databases like Crunchbase to find VCs which invest in your sector. Take a close look at the VCs criteria to make sure you’re a good fit before you approach them. And it usually isn’t worth approaching a VC firm which has invested in one of your competitors because most prefer not to have competing companies in their portfolio. 

Be ready with your elevator pitch – you never know when or where you’ll bump into someone who could become your next investor.

Top VCs at Series B

Venture capital firms provide Series B funding. It’s a good idea to investigate whether the firms that invested in your Series A round can invest in your Series B round too. Here are some top VC firms in the UK for Series B funding:

• Accel
  Invests globally
  Invested in: Deliveroo, Hopin, Monzo
• Balderton Capital
  Invests in Europe
  Invested in: CityMapper, Healx, Better Origin
• BFG Capital
  Invests in Europe
  Invested in: Gym Box, BigBlu Broadband
• Hoxton Ventures
  Invests in Europe
  Invested in: Luminary, Deliveroo
• Index Ventures
  Invests globally
  Invested in Birdie, Rooser and Revolut.
• MMC
  Invests in deeptech, mostly in UK but also in Europe
  Invested in: YuLife, Masabi, Snowplow
• Octopus Ventures
  Invests in Europe
  Invested in: ManyPets, Cazoo, Elvie
• Pegasus Tech Ventures
  Invests globally
  Invested in: airbnb, SpaceX
• Saphire Ventures
  Invests globally
  Invested in: Monday.com, Wise
• UpHonest Capital
  Invests globally
  Invested in: Lime, Instacart

The challenges of Series B funding

More money, more problems, right? Series B is known to be one of the more challenging funding rounds. As the amount invested is larger, there’s more on the line.

The challenges that come with Series B funding include:

• long negotiations over terms
• meticulous and time-consuming due diligence
• investors demanding more control, preference shares and more

SeedLegals was designed to help founders overcome these challenges. If your legal process is streamlined, you can save time and increase your ability to overcome the challenges associated with raising big rounds like a Series B. Our automated workflow for creating, negotiating and signing legal documents combined with our Advisory service makes the legal side of your fundraise much more efficient.

Alternatives to Series B funding

A traditional Series B funding round can take from 6 to 12 months from start to finish. But there are alternative ways to raise the financing you need:

Raise before a round with SeedFAST

SeedFASTs are ‘advanced subscription agreements’. An investor gives you money now in exchange for shares in an upcoming funding round. For a SeedFAST, you don’t set a company valuation. 

MORE: SeedFAST – how ASAs work

Use a SeedNOTE for more complex deals before a round

If an investor wants interest or a return of capital, you can use our convertible loan note, SeedNOTE.

MORE: SeedNOTE – how convertible loan notes work

Top up after a round

With SeedLegals you can build into your funding round the ability to top up the round to an agreed limit after the round is closed without needing to get further consent from your existing investors. This is particularly useful when most of your investors are ready to sign but one or two need more time.

Then, after the round is closed (and you’ve got the money from the round investors), you can then use an Instant Investment with additional investors to top up the round.

MORE: Instant Investment – how to top up your funding round

Talk to a funding expert

Want to know if SeedLegals could help you with your Series B round? Or not sure whether to try agile funding or start a full funding round? Book a free call with a funding strategist to get your questions answered, fast.