Investing in Series C Startups

Posted on the 29 July 2011 by Cameronchell

Series C financing isn’t the last round of funding by any means, though it is typically what is seen as the final round. This is the round of funding where startups have started to move from beyond pre revenue, and past acquiring their first few customers.

Valuations continue to climb in Series C financing, meaning once again for the amount of dollars put in, the percentage and amount of shares received is lessened. While at this point the risk of the startup collapsing is lessened, the reward for investing late over investing in the earliest stages is lessened.

Series C round startups are generally companies that have been around longer than most startups and are what is seen as “more established”. These companies have generally begun making the shift towards a customer acquisition model, with much of their focus shifting towards sales and acquisitions.

1. Exit Tactics: Though the need to focus on exit tactics is prevalent through your entire investment cycle, the C round of financing is where exit strategies begin to be implemented. Interview people or organizations that you or the startup’s have identified as part of your exit map and determine what is realistic for your investment.

2. Management Depth: Management has the company to a series C round but do they have the depth and additional strength to scale commercialization?

3. Expenses: Has management kept expenses just as low through series B as they did through Series A funding? Do they plan to keep them as low through Series C and do they have plans in plans to minimize costs? If marketing budgets are starting to rise dramatically this is a red flag. Marketing costs shouldn’t be rising until these companies have proven company traction.

The various rounds of financing that startups undergo are generally the method used by investors to gauge their success, growth and progress. Ultimately the different rounds of financing will determine what amount of investment will get you what percentage of the startup. Additionally it does help in determining milestones and possibilities for further investment, depending on whether you are a late or early stage investor. By knowing what to look for, and where startups generally are, from an operations perspective, investors are able to avoid a fair deal of surprises that may come attached to their investment.