What is Series Financing in the UK?

As a small business owner in England, you will want to familiarise yourself with the various ways of raising finance. Raising money is often necessary to scale your business at an early stage. Series financing is one of the most common ways that small businesses raise growth capital. It is usually a form of equity finance, though it can involve some debt. Typically, series financing investors are venture capital firms and high net worth individuals. This article will explain, in particular, what series financing is and how it compares with other types of financing.

What is Series Financing?

Series financing is where your company approaches outside investors for cash to significantly expand its operations. These outside investors are usually professional investment firms called venture capital funds that specialise in investing in early-stage businesses. 

In exchange for cash, these investors will obtain shares in your company. In other words, your series financing investors will become part-owners in your business, which has numerous implications. Importantly, you will have less control over your business if you agree to bring on series financing investors. 

Is Series Financing Right for Me?

Companies that obtain series financing have usually developed a successful business model that is capable of rapidly scaling. Investors will look to see that your business’ revenue figures are consistent and that you have an established customer base for your product or services. 

Series financing investors are less likely to invest in startup companies or businesses that may have an innovative idea but have not yet implemented it. This is why most businesses that successfully raise series financing will have completed earlier financings common to startup and seed-stage companies.

What is Series A Funding?

As the name suggests, series financing involves a series of different funding rounds. The investors for each round will usually invest in later stages, provided your company meets pre-agreed growth targets. 

Series A funding, as you may assume, is the first stage of a series funding process. In this type of series funding, investors will target companies with a demonstrated business strategy and early-stage performance. You must convince investors that the only thing preventing growth is access to cash. It follows that having an excellent idea alone is not enough.

What is Series B Funding?

Series B funding typically focuses on taking your business beyond its early stage and into the mid-market stage. 

At this stage of your company’s funding, you may wish to use the money raised to improve sales, advertising, and tech, and increase the number of employees that your company has. Series B funding typically involves similar investors to Series A. However, you may also have new investors in the form of venture capital firms that invest only in more established companies.

What is Series C Funding?

Series C funding is usually for companies that are already operating at a high capacity and have an established presence within their market. This type of investment is usually used: 

• for extra funding to build on a new product;
• to expand to a new market; or 
• to acquire or merge with another company. 

In other words, Series C funding typically focuses on scaling an already established and successful company. Some common reasons for acquisitions or mergers (financed through this type of investment) could be to create synergies. Synergies are where two companies merge to create greater efficiency within both of their operations, for example, where two companies operating within the same supply chain merge. 

In a Series C funding, you may also have more investors than in earlier series funding. As your business operations will be less risky, you may attract the attention of private equity funds that may have investment banks, hedge funds, and private equity firms investing in your business alongside venture capital firms. 

Finally, a company can choose to push for further funding, such as Series D funding or Series E funding. This is often a tactic to push for further investment in line with an overall business strategy. Usually, the end goal is an initial public offering (IPO), which will allow the public to buy shares in your company. 

How Does Series Funding Fit With Other Financing Methods?

Series A funding typically follows an initial seed funding (and pre-seed funding) round. Seed funding refers to when the startup founders are looking to get their business running, and are seeking investment to do just that. 

At the pre-seed funding stage, investors are typically the startup founders themselves, alongside their network and friends.

Seed funding, on the other hand, is a more formal way of raising investment in a company. It can involve the startup founder and friends, but it will also typically involve formal investors as well. Some common players in seed funding also include venture capital firms and angel investors. 

On the whole, series financing is an important aspect of scaling your startup company. It is important to keep your series financing prospects in mind if you are hoping to take your early-stage business to its next stage.

Key Takeaways

As a startup business owner, you will want to make sure that you are familiar with the different ways of raising funding for your business. One common way is through series funding. Series funding comes in stages and involves different investors depending on what type of series funding you are pursuing. Keeping your options open for investment from venture capital firms and institutional investors is an important aspect of successfully managing your startup.

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