A Guide to Series C Funding for Late-Stage Startups: Everything You Need to Know

In the context of growing a startup business, you might say that Series C is the beginning of the endgame. And if you’ve reached this milestone, you have a lot to be proud of.

Even at the peak of venture funding activity in Q3 2021, there were just 176 Series C deals in the startup ecosystem — and that count plummeted to just 55 in Q1 2023. In the grand scheme of the 7,000+ venture-backed companies in the world, even having a chance to raise a Series C is rare.

But just because you reached this point doesn’t mean the job is done. Here’s what you need to know about raising a Series C round of funding to become one of the few that closes a deal.

What Is Series C Funding?

Series C funding is a late stage of startup growth and is often the final round of equity funding before a company exits, either via IPO or another liquidity event. Compared to previous rounds where you’re proving product-market fit and then building the framework for scaling the business plan, the expectation at Series C is that you’re using funds to expand your product lines, reach new markets and geographies, or even take advantage of M&A activity to solidify your market leadership.

At this later stage of growth, the expectation is that your business is much more mature and on a path to a meaningful exit. And as a result, you’re a much less risky investment than you were in earlier rounds, whether that was the early-stage seed round, your Series A funding, or even your Series B. That’s why you’ll see private equity firms and investment banks, and other financial institutions join the ranks of traditional venture capital firms in Series C deals.

Major Series C Funding Round Investors

According to Crunchbase, the most active Series C investors have traditionally been Andreessen Horowitz, Tiger Global Management, Sequoia Capital, and SoftBank — although none of these VC firms led a Series C round of funding in Q1 2023.

Because Series C activity is at historic lows, it’s difficult to say who the “most active” investors are at this stage right now. Instead, it may be more important to look at less traditional forms of funding to build out your Series C in 2023.

One example might be to lean more on debt financing to balance your typical equity financing rounds. (You can learn more about how to do that from Finley CEO Jeremy Tsui in this episode of The Role Forward.)

You may also spend more time connecting with private equity firms than may have been common in the years of booming Series C investments from venture capitalists. Back in 2021, some of the most active private equity/growth equity firms at Series C were:

• Insight Partners
• Coatue
• Dragoneer Investment Group
• ICONIQ Capital

How Series C Funding Works

Series C funding represents a significant evolution in a startup’s journey compared to earlier stages like seed funding, pre-seed, Series A, and Series B rounds.

During the pre-seed and seed stages, startups are in their infancy, often grappling with the challenges of establishing a viable product and business model. The Series A round typically follows, where the focus shifts to refining the product-market fit and initiating a scalable business model. Series B rounds are about further growth, market penetration, and possibly, beginning to explore international markets. In contrast, Series C funding is sought by companies that have already proven their market fit, have a substantial customer base, and are now looking to expand aggressively.

How the Series C Fundraising Process is Different From Previous Rounds

Because Series C marks the earliest days of your exit stage, the fundraising process looks slightly different than it does at Series A or Series B. Generally, the cycle of connecting with investors, presenting your pitch deck, completing due diligence, and negotiating term sheets remains the same. But there are two key differences to make note of to raise Series C funding:

• The players. Instead of talking to angel investors like you did in early stages, expect to spend more time discussing debt financing with various banks or potential deals with private equity firms than you did in previous stages. A traditional VC may still anchor your round, but even hedge funds or secondary market brokers could come in as new investors to get you to the next level.
• The granularity of detail. You’ve already proven your business model is successful. You’ve proven a track record of success in scaling your go-to-market motion. So, at this stage, investors will be diving deeper into your metrics to understand how far you are from an exit and whether or not they’ll see significant returns.

Most Important Metrics for Series C Investors

The metrics that matter at Series C will align with the ones investors wanted to see at Series B for the most part. But as you prepare your data room for the fundraise, make sure you’re setting yourself up for the most granular views possible to meet investor demand.

• ARR and growth rate. Strong growth not just overall but on a product-by-product and segment-by-segment basis. Are you proving you can expand product development and introduce new products that help you scale vertically, horizontally, or both?
• Net revenue retention. Are you on a path to the golden benchmark of 120%? How does that number change as you compare different product lines and segments of your customer base?
• Burn multiple. Efficiency is more important than ever in the exit stages. Investors will want to see a best-in-class burn multiple of .8x or lower.
• CAC and CAC payback. Be able to analyze these metrics on a channel-by-channel basis for your marketing flywheel. Do you have a healthy marketing mix, or is your go-to-market motion entirely dependent on one or two channels?
• Pipeline generation by channel. Show how the market expansion you invested in with Series B funds is paying off. Break pipeline generation out not just by channel but by geographic regions and ICP segments.
• SaaS rule of 40. Your path to profitability is more important now than in any previous stage. How close are you to striking the right balance between growth and profitability?

At this level of maturity, you should expect potential investors to ask for many different views of each of these metrics. And you should also expect much deeper dives into your financial model.

Weaving a narrative is important but not sufficient at this point in your company’s growth. Investors will want to see the complete forecast for how you expect to perform over the next 3-5 years across top-line growth, headcount costs, and operating expenses.

How Mosaic Can Help with Series C Financing

In June 2023, we announced our own $26 million Series C round of funding — and our founding team used Mosaic to work through the due diligence process every step of the way.

If you want a quick overview of how easy it is to pull a due diligence list together in Mosaic, watch the video below.

But in the specific context of Series C funding, there are a few complex requests we received over and over again from potential investors that Mosaic made much easier to manage. They include:

• Clean, sanitized financial model. A version of the financial model that has the clearest possible assumptions and inputs, rather than the model you’re in daily. You should also include at least three scenarios with projections for how you’ll perform with the influx of new capital.
• Historical monthly financials. Department-level granularity across your income statement, balance sheet, and cash flow statement. Investors want more than just the standard account-level overview.
• Win rates and sales cycles. Give investors insight into your closed-lost reasons and how you perform against competitors when they come up in deals. Build a narrative for how you’re performing given the current economic conditions.
• Channel-level pipeline. Show investors that you aren’t just pouring fuel on the go-to-market fire. Prove that you know where to inject cash to maximize returns with the most efficiency possible.
• Headcount costs by department. Advanced SaaS metrics like R&D payback and other efficiency measures are critical to Series C funding. We’re in an era of “do more with less,” and you can’t be over-investing in headcount the way companies did in 2021 and 2022.

These are just a few examples of complex requests you could get from investors. Without a tool like Mosaic, it could take you days to pull all the latest information together for each investor conversation. But our ability to aggregate financial and operational data from your CRM, HRIS, billing systems, ERP, and data warehouse ensures you’re always working with real-time data.

Want to learn how Mosaic can help you spend more time crafting the narrative for investor conversations and less time on tedious data management? Reach out for a personalized demo before you start your Series C fundraise.