Series C Funding: What It Is, How It Works & 3 Examples

If you made it this far in the startup journey, you have a significantly battle-tested product or service, and you've built an efficient organization that knows how to launch products across different markets.

To raise a Series C, you'll have to leverage this success to persuade investors that there is more room to grow.

In this article, we'll dive into what Series C financing is, when and how much to raise, how long it should last, and some funding sources.

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What is Series C Financing?

Series C financing is the following growth-stage investment into your company after you've raised a Series B.

The fundraising dance is one you are already familiar with. You'll pitch to various growth-stage investors on your startup's potential to be a unicorn in the near future. The investors will run their internal due diligence process to evaluate your company. If there's a potential fit, they'll send you a term sheet that can be negotiated. You'll then get a wire for the amount to your checking account and return to work on building a unicorn. 

This round should allow you to manage the dizzying hypergrowth you're experiencing and ignite new sources of growth. You'll have a deep war chest to continue expanding your team, stretching into more markets on your way to global and regional market domination, and maybe acquiring smaller startups so you can offer new products or services.

Usually, Series C funds are used for:

1. Growing your team by acquiring the promising engineering teams of smaller startups with compelling products or services. 
2. Integrating new products or services into your repeatable sales and marketing funnels to unlock more revenue.
3. Formulating financial scenarios and internal hypotheses to optimize for an exit scenario by either an acquisition from a large corporation or via the public markets.

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When to Raise Series C?

We recommend that you start raising your Series C 12-14 months before you've run out of money from your Series B. This will give you, your team, and your board enough time to pitch your existing and new investors and show them your startup is on target to hit your revenue and growth goals. Going bankrupt due to bad cash-flow planning when you've succeeded in building an innovative product would leave you and your team with deep regret.

It's not uncommon for startups to have Series C term sheets from their previous Series B investors before they have started fundraising. This is called a "pre-empting funding offer," and they occur in Series C and onwards due to the predictability of revenue in some industries, like enterprise SaaS.

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How Does Series C Funding Work?

The mechanics behind Series C are substantially equivalent to other priced equity fundraising rounds that we've covered in other guides: you'll pitch multiple investors, you'll go through their due-diligence process, and if they decide to invest, you'll negotiate terms.

To raise a Series C, it's critical to have a clear data storytelling about how successful you've been and why there's still more room to grow. In turn, the due-diligence process grow-stage investors rely on is very data-centric. Investors become recognition machines: they care more about your internal metrics of traction than the vision-focused pitches you gave in earlier rounds. As we mentioned before, this dynamic of data diligence causes a fundraising phenomenon unique to Series C and onwards: pre-emptive funding offers. 

Your Series B investors have information rights to your scaleup. Your investors are likely refreshing the same internal data dashboards you are and have analysts making projections on your growth trajectories.

These firms are patiently waiting to get an inside edge on your next round and will strike when the timing is right. They often have ownership targets in the startups they invest in. Their goal is to get as much equity as you're willing to give out.

This is why in practice, your Series B investor will show up at your office and hand you a term sheet before you even start raising your Series C. 

They'll say something along the lines of: "We believe in you so much that we're ok with you only being 75% of the way towards your revenue targets. We want you to avoid going through a lengthy fundraising process. Here is a check at a valuation we think is fair. We recommend you take it so you can continue scaling quickly."

As a founder, fundraising is a distraction and energy draining. However, it's in your and your employee's best interest to minimize dilution, so at the very least, you should use that pre-emptive term sheet to test out the waters with other investors to see if the valuation you're getting is a fair-market price.

Other than that, your pitch, pitch materials, and data room will be similar to the ones you used in Series B. The essential metrics used in Series C fundraising are revenue growth, sales efficiency, customer retention rates, and other operational culture metrics like costs for productivity, salary pay for different organizational departments, and hiring and retention.

Series C Funding Sources

Your sources of Series C funding are more or less the same as the growth-stage options you had at Series B. You'll be exploring venture capital funds, cross-over funds, venture debt, and some forms of recurring revenue advancements.

We highly recommend checking out Failory's Series B guide to explore the nuances between Series C funding sources.  

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How Much Series C Money Should You Raise?

How much money to raise depends entirely on your startup's needs. Different industries have different growth burn rates. Also, growth-stage checks for startups aren't always guaranteed as recession or corrections can affect how growth-stage investors deploy funds, so always raise like capital is a scarce resource.

A good broad framework is to raise enough money to sustain 24 months' worth of operations or a path to break even. Consult with your Series B investors or your board to get a better pulse on the right situation for your startup. They see more deals than you do, so they'll also be able to give you insights on what the healthy growth metrics are to raise a Series D if needed.

Something to consider is the average valuations of pre-seed to Series A startups in your space that might be worth acquiring. Series C is when acquiring your way to more growth becomes viable. So it's a good idea to ask yourself how much cash you would need to acquire the top two most promising startups in your space if you had to pay 50% of their current valuation in cash.

Another big use of Series C funds is hiring and R&D. At this point, equity is seen as less valuable for potential employees, so you're likely offering competitive salary rates. Do a bottom-up analysis of how many more team members you need to hire to meet your revenue targets and add a healthy buffer to that amount.

At Failory, we studied 1,671 Series C rounds. We discovered that the average amount raised in a Series C round by US startups is $87,983,683, while it's $88,590,415 for startups in the rest of the world.

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Which Was the Largest Series C Round?

At the time of writing, the distinction for the largest Series C funding round goes to Abogen Biosciences, the China-based biotech company that was building the first mRNA Covid-19 vaccine in China.

Abogen raised $1B in August 2021, from a syndicate of investors, with about 20 new and existing investors providing assistance.

Realistically, your startup isn't trying to build a solution to the most deadly virus pandemic in recent decades. Therefore, don't expect to raise amounts anywhere near that for your Series C round, especially if you're building a software business.

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How Long Should Series C Funding Last?

The right mindset for how long Series C funding should last is forever or long enough to get you more money.

The general rule of thumb is that it should last you as long as you and your team need to either:

1. Hit the product and revenue milestones that future Series D investors or public-market investors expect for them to write you a check.
2. Be optimized to have conversations with potential acquirers if the right exit is there.
3. Obtain enough market share in all the markets you're in so you can be profitable but keep growing at a steady rate using the profits without having to raise more money and while remaining a private company.

Growth-stage money is scarce. Acquiring startups is expensive and integrating them successfully into your distribution channels is equally difficult. 

Since you have so many costs and growth targets are now slower to hit, this usually translates to 24-36 months' worth of operating cash flow (burn rate) until you may run out of money (runway). If you are default alive and making more revenue than you're spending, you're usually in a flexible position to choose your destiny.

3 Examples of Series C financing

A textbook example of Series C financing is Monte Carlo. This end-to-end Data Observability platform helps enterprises understand and trust their data so they can make better decisions. They raised an oversubscribed $101M Series C led by ICONIQ Growth with participation from Salesforce Ventures and existing investors like Accel, GGV Capital, and Redpoint Ventures.

Eden Health is another interesting case study on the smaller side. Eden is a health concierge provider that offers healthcare services like primary care, behavioral health services, and benefits navigation to employers and commercial real estate building landlords. The team raised a $60M Series C in February 2021. According to the FierceBiotech report, the company plans to use Series C funds to grow the number of brick-and-mortar medical offices in cities such as Boston, Chicago, Houston, and Los Angeles.

On another extreme, Gorillas, the Berlin-based scaleup offering on-demand grocery delivery and dark store operator, closed a $1B Series C financing round. Gorillas rode the food delivery hype to a term-sheet at a $3.1B post-money valuation from previous investors like Coatue Management, DST Global, and Tencent, along with new investors like G Squared, Alanda Capital, and Thrive Capital.

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Wrapping Up

There you have it - we covered what Series C financing is, how to determine when and how much to raise, and how long it should last.

At this point, you should feel like a fundraising expert. The Failory team is beyond excited that you're so close to building a unicorn.