Introduction of private investment_05 — Series C & D

Finally, the startup journey will pivot from private to public markets, highlighting Series C and D financing as crucial stages. In Series C, successful companies secure substantial funds, often the final push before an IPO, with valuations ranging from $100 million to $160 million. Series D financing is more complex, driven by positive or negative factors.

5_1_Series C

When a company has established itself as a leader in its industry and achieved a certain level of profitability, it may initiate Series C fundraising to develop new business models and prepare for Initial Public Offerings (IPOs). During this phase, investors gradually shift towards Private Equity (PE) funds, with some Venture Capital (VC) firms that have previously invested potentially participating as well. Companies entering Series C financing demonstrate exceptional performance and are ready to expand into new markets, acquire additional businesses, or develop new products. Generally, companies seeking Series C financing aim to take their products beyond the domestic market and enter the international arena. They may also seek to enhance their valuation before an Initial Public Offering (IPO) or acquisition.

Once a company has developed a product that becomes a market darling, private equity firms and investment bankers come to visit. These individuals aren’t looking for too much risk — they let angel investors and venture capital firms handle that. They want to inject substantial funds into companies that have already proven successful to ensure their leadership position.

Series C financing is typically the last round of funding a company raises, although some companies do proceed to raise Series D or even Series E rounds and beyond. However, more commonly, Series C financing serves as the final push for companies preparing for an Initial Public Offering (IPO) or acquisition. In Series C financing, startups typically raise an average of $26 million to 60 million. The valuation of Series C companies usually falls between $100 million and $160 million, although the company’s value may be higher, especially with the recent explosive growth of “unicorn” startups. The current valuation is not based on hopes and expectations but on hard data points — how many customers does the company have? What is its revenue? What is the current and expected growth?

Series C financing often comes from late-stage venture capital firms, private equity companies, banks, and even hedge fund venture capital firms. This is a critical juncture in the startup’s life cycle, where major financial institutions may choose to participate as the company and its product are validated. Previous investors might also opt to inject more funds at the Series C stage, but it’s by no means a necessity.

5_2_Series D

Series D financing is somewhat more complex than earlier rounds of financing. As mentioned earlier, many companies complete their fundraising through Series C financing. However, companies may choose Series D financing for several reasons.

The first one is positive: They have identified new expansion opportunities before going public but need another push to realize this goal. An increasing number of companies are raising Series D (or even later) funds to enhance their value before going public. Additionally, some companies wish to remain private for a longer time than before. These are all positive reasons for engaging in Series D financing.

The second one is negative: The company has not met the expectations set after Series C financing. This is referred to as “down-round financing,” where the company raises funds at a valuation lower than the previous round of financing. Down-round financing may help the company navigate challenges, but it can also lead to a devaluation of the company’s stock. After undergoing a round of down-round financing, many startups find it challenging to raise funds again because trust in their ability to fulfill commitments has diminished. Discounted financing can also dilute the founder’s shares and disappoint employees, making it difficult to regain a leading position.

After the Introduction of the private investment series, I would like to dig into the similarities and differences between venture capital and private equity with examples. Here are the following topics.