series b funding meaning

What Is Series B Funding?

Series B funding marks the stage where a company transitions from “proven viability” to “scalable expansion,” with the primary goal of accelerating growth and improving operational efficiency through capital infusion. Typically, this round follows Series A and precedes Series C. Investors at this stage are predominantly institutional funds and industry capital.

At this phase, projects must demonstrate a replicable business model, predictable cash flow, and a team capable of executing across regions or product lines. For Web3 ventures, common triggers include stable mainnet launches, established revenue-generating products, and a user/developer ecosystem entering sustainable growth.

What Problems Does Series B Funding Usually Address?

Series B financing mainly targets the “bottlenecks” in scaling, such as market expansion, talent acquisition, and regulatory upgrades. Capital allocation is more focused on measurable growth and building competitive moats.

Key use cases include: entering additional countries and compliant markets, strengthening R&D and security teams, enhancing infrastructure stability, advancing commercialization (such as fee structures and enterprise partnerships), and developing data and risk management systems. For example, a blockchain wallet with over one million users post-Series A may use Series B funds for multichain support, hardware security, global customer service, and local compliance licensing.

How Does Series B Differ From Series A and Series C?

The main differences between Series B and Series A lie in objectives and evidence requirements. Series A focuses on validating product-market fit, while Series B emphasizes scalable growth and healthy unit economics. Compared to Series C, Series B still prioritizes growth, whereas Series C focuses more on clear profitability, M&A activity, and large-scale international expansion.

Investor composition also varies: early-stage funds are common in Series A; Series B introduces larger growth funds and industry players with more standardized terms; Series C may attract late-stage funds and strategic investors seeking M&A or IPO opportunities.

How Is Series B Valuation Determined?

Series B valuations typically combine comparable company analysis (using sales or earnings multiples) with growth quality metrics. “Company value” is often understood as a multiple of annual revenue; growth quality considers speed, retention, and gross margin structure. Web3 projects also factor in on-chain data stability and compliance risk premiums.

There are two key valuation metrics: pre-money valuation (company value before this round’s investment) and post-money valuation (value after new capital is added). For example, a pre-money valuation of $200M plus $40M new capital yields a post-money valuation of $240M; equity dilution for this round would be $40M ÷ $240M ≈ 16.7%. Dilution refers to the reduction in ownership percentage for existing shareholders.

In crypto projects, FDV—Fully Diluted Valuation—represents the total value based on the maximum future token supply. Token FDV should be considered alongside equity valuation to avoid incentive misalignment caused by overvalued tokens or undervalued equity. According to public databases, Series B rounds in 2024 typically range from several million to tens of millions of dollars, with investors placing greater emphasis on revenue authenticity and growth efficiency.

What Is the Typical Process for Series B Funding?

Step 1: Define capital usage and milestones. Clearly state “how the funds will be used” and “which measurable outcomes are expected,” establishing a 12–24 month roadmap.

Step 2: Prepare materials. This includes a pitch deck, key metrics dashboard, financial and compliance documents, code and security audit summaries, user/customer case studies, and tokenomics/governance explanations (if applicable).

Step 3: Select investors. Build a shortlist based on fund stage, industry focus, and past investments—prioritizing those who can provide strategic resources or have an investment track record in Web3.

Step 4: Initial and follow-up meetings. Use 20–30 minutes to explain the business model, data, and fund allocation; follow-up meetings dive deeper into technology, risk controls, and unit economics. Reference verifiable external data (e.g., trading volumes or user retention on Gate) to enhance credibility.

Step 5: Term sheet negotiation. The lead investor (who sets terms and valuation) proposes key terms—valuation, funding amount, board seats, information rights—while co-investors participate proportionally.

Step 6: Due diligence. This covers financial, legal, technical, and security compliance checks. Web3 projects must provide audit reports, compliance opinions, and key contract details.

Step 7: Signing & closing. Finalize investment agreements, transfer funds, and arrange for delivery of equity or token rights; set clear milestones and closing conditions.

Step 8: External communications. Coordinate public disclosures regarding the financing and its intended uses; maintain transparent reporting to investors on a quarterly or monthly basis to foster governance and data transparency.

What Metrics Do Investors Focus On for Web3 Projects in Series B?

For Web3 projects seeking Series B funding, investors prioritize “quality and sustainability”—specifically healthy growth, sustainable revenue streams, security, and regulatory compliance.

For users and retention: metrics include monthly/daily active users (MAU/DAU), retention over one to three months, stability of paying or active addresses.

For revenue: focus is on transaction or subscription income, client base stability, and unit economics like LTV/CAC (lifetime value vs. customer acquisition cost), assessing whether they are positive.

On-chain metrics: TVL (total value locked), transaction counts, gas fees share, network stability, and absence of security incidents.

Compliance: KYC/AML practices, local licensing status, and legal opinions are key considerations.

Ecosystem/community: developer count, code update frequency, ecosystem partners, and enterprise case studies matter significantly. If tokens exist, investors also examine trading volumes/depth on Gate, wallet distribution/unlocking schedule to evaluate liquidity and secondary market pressure.

How Are Equity and Tokens Structured in Series B Rounds?

A common model in Series B is a hybrid “equity + token rights” structure. Equity represents company ownership; token rights are often granted via SAFT (Simple Agreement for Future Tokens), meaning investors provide funds now for future token delivery upon agreed milestones or events.

To reduce sell pressure, tokens typically feature vesting schedules or phased release (e.g., linear vesting), unlocking gradually over time. Coordination between equity-based and token-based incentives is critical to prevent misaligned motivations between teams and investors.

Governance alignment is also essential. If tokens carry governance functions, clarify boundaries between token-holder voting rights and board authority to avoid operational gridlock; ensure clear arrangements regarding foundations, operating entities, and holding addresses—using independent custody and transparent disclosures when necessary.

What Are Common Terms and Pitfalls in Series B Funding?

Liquidation preference is critical—it dictates “who gets paid first (and how much) if the company exits or liquidates.” The most common is 1x non-participating preference (investors recover principal plus agreed returns but do not share remaining proceeds); participating preference allows investors to also share in remaining distributions after recovery—resulting in greater dilution for founders.

Anti-dilution clauses protect investors during subsequent down rounds; overly aggressive terms (like full ratchets) may deter future fundraising. Weighted average adjustments with clear triggers and caps are recommended best practices.

Board seats and veto rights significantly affect decision-making efficiency. Limit veto powers to specific major items (such as additional fundraising, M&A, or budget caps) to prevent interference in daily operations. Information rights and performance clauses should be practical and based on verifiable data.

Token-related pitfalls include rapid unlocking schedules, uneven distribution, or inflated FDV causing secondary market pressures. Establish transparent monitoring/disclosure mechanisms with long-term milestone-linked vesting arrangements.

Contractual/compliance risks are equally important—cross-border issues may involve securities/tax complications; experienced legal/audit professionals should oversee the process to ensure both entity- and individual-level clarity regarding fund safety and compliance responsibilities.

How Should Series B Strategies Adapt Across Market Cycles?

In bull markets, Series B rounds are easier to close but can carry overvaluation risks. Maintain pricing discipline—avoid excessive marketing spend or inflated FDV; prioritize investments in product development and security.

During bear markets, investors value efficiency and cash flow more highly. Strategies include extending cash runway, optimizing cost structures, considering internal bridge rounds or interim financing solutions; controlled-risk debt instruments may be used as a last resort.

Regardless of market cycle, stagger token launches/product upgrades/unlock periods to avoid clustering; keep communications regular and transparent; use verifiable data (such as trading/on-chain metrics from Gate) to support your narrative and minimize risks from market sentiment swings.

Key Takeaways for Series B Funding

The essence of Series B is to leverage reliable capital to amplify predictable growth—supported by accurate and repeatable data demonstrating business model viability and operational efficiency. Ensure consistent definitions for pre/post-money valuations and accurately calculate dilution; maintain disciplined processes for fund usage, due diligence, and closing; coordinate equity-token-governance structures for Web3 projects with careful vesting/disclosure planning; guard against overreaching liquidation or anti-dilution terms; enforce price discipline throughout cycles; use public data from platforms like Gate to enhance credibility. When done correctly, Series B becomes an “engineering-driven” scale-up rather than a speculative gamble.

FAQ

How much capital is typically raised in a Series B round?

Series B rounds generally range from several million to tens of millions of US dollars—the exact figure depends on the project’s sector, market size, and prior performance. Compared to smaller Series A rounds, Series B is significantly larger to support team expansion, market entry, and product optimization. It’s recommended to estimate funding needs based on an 18–24 month operating plan to avoid raising too much or too little.

Why do some projects skip directly from Series A to Series C?

This depends on the project’s growth trajectory and market conditions. If a project grows rapidly with outstanding metrics, investors may fund a direct leap to Series C; conversely, if growth slows or market sentiment weakens, projects may stall at the Series A stage. While the typical progression is A→B→C rounds, it’s important to stay flexible based on market dynamics.

What alternatives exist if Series B fundraising fails?

If a Series B round falls through, projects can expand their investor base (targeting industry funds, strategic partners or angel follow-on investors), pursue mergers/acquisitions or strategic financing as alternatives. If growth potential remains strong in the data, teams may revise their fundraising targets/strategies for another attempt or rely on business-generated profits for further development.

How should founders negotiate valuations with investors in Series B?

Series B valuations should be based on post-Series A key metric growth (users/revenue/daily activity etc.), referencing industry benchmarks and current fundraising climate to establish a reasonable range. Prepare detailed data-driven documentation highlighting clear growth paths and competitive advantages while soliciting multiple investor offers for better negotiating leverage. Don’t insist rigidly on valuation at the expense of missing out on financing opportunities.

What investor backgrounds should founders focus on in Series B?

Beyond capital size, assess investors’ experience in your vertical—their track record with similar projects—and their ability to provide strategic resources beyond funding (e.g., networks, go-to-market channels, technical expertise). Choose partners who align with your stage of development and values for better long-term collaboration outcomes. Use deal databases and industry reputation checks for thorough due diligence.