Series B funding round

Young companies need money before they make profits. They get it from investors and give up shares in the company in return. Such fundraising efforts happen in several steps, which are named after letters. The Series B funding round is the second of these major steps. It comes when a product already exists, customers are paying, and the company wants to grow faster. Typically, tech companies raise 20 to 100 million euros in this round, sometimes significantly more.

The leap from experiment to a company with a plan

The rounds before this one are about experimentation. In the very first phase, the so-called seed stage, a team is only just checking whether its idea works at all. In the Series A, the goal is to finish a product and find the first paying customers. By the Series B, that question has already been answered. Now it’s only about speed.

That’s why the Series B is considered an important hurdle in the industry. Many startups fail exactly here. They may have a nice product, but revenue isn’t growing fast enough. At this stage, investors expect hard numbers instead of nice presentations. Those who can’t deliver them get no further money and often have to give up.

For observers, the round is therefore a signal. A large Series B means: professional investors have checked the books and consider the business model viable. That explains why such rounds are regularly reported as news, even though the company isn’t making a single cent of profit yet.

What gets negotiated in such a round

At its core, a Series B is a purchase agreement for company shares. The company issues new shares, and the investors pay for them. Central to this is the valuation, i.e. the calculated total value of the company. If an investor pays 40 million euros and receives 20 percent in return, the company is valued at 200 million euros. This figure is not a measurement but the result of negotiations.

The round is usually led by a lead investor. This is a financier who contributes the largest amount and negotiates the terms. Other investors join in under the same conditions. Often, the investors from the Series A also participate again, so their stake doesn’t shrink too much. That’s because the new shares reduce the percentage ownership of all existing owners, an effect known as dilution.

A common misconception is that this money belongs to the founders. It almost always flows into the company’s coffers and is earmarked for specific purposes. It typically pays for new employees, sales expansion abroad, and, in the case of AI companies, computing power. In return, investors usually get seats on the oversight board and a say in major decisions.

Series B in headlines and job postings

In business news, you read sentences like: The Munich-based AI startup closes a Series B round of 60 million euros. This refers to exactly the process described above. Often the valuation is also mentioned, sometimes only the amount raised. Anyone comparing the two can figure out what percentage of the company was sold.

The information is also useful for job applicants. A company after its Series B typically has between 50 and 300 employees and enough money for about two years. So it’s no longer a pure experiment, but also not yet a safe, established corporation. If successful, the Series B is followed by Series C, D, and further rounds. In the end, there’s often an IPO or a sale to a larger company.