Growing businesses face a lot of challenges. For startups, however, this growth is often done in two ways—increased sales and through a wide range of funding rounds that infuse you with cash.
Following our last blog on the complexities and caveats that go into Series A and Series B funding rounds, we would today like to turn our attention to the big rounds—Series C and beyond. After a company makes it past Series B funding, a high-stress phase in which startups need to prove that they can scale, each stage after this is meant to keep the growth coming in—and prepare the company for the next big move.
Investments are bigger, and so is the number of investors. Startups will start to see more traditional funding partners as they progress through the late-stage funding rounds— late-stage VCs, private equity firms, hedge funds and banks will all look to grab a piece of the action.
Series C-F: Proving the Profits
If you make it to the Series C funding round, you have already proven that your product can generate revenue, that your sales model is working, and that you can retain customers. Often, startups can consider themselves successful at this point. But there’s a reason you’re entering another funding round—there’s more work to do.
Maybe you’re looking to acquire a company to fuel your business. Maybe you’re looking to expand the product either in terms of features or markets. Either way, you’re looking to scale and have a business model ready to make that happen.
Though you give off the air of being a “low-risk investment” and are probably en route to a mid-seven-figure investment, the reality is that these investors are looking to make money. In this, the goal is to prove that you can grow your business rapidly and profitably. Whether this is going to be your last funding round or you will be heading into D, E, F and beyond, success is all about margins.
Sage Intacct notes that companies preparing for late stage funding rounds should look to prove the following:
- The systems teams are refined overtime and there’s more operational rigor at this stage. This can increase EBITDA +10%:
- Tightening the close to get data to the FP&A team much faster.
- Deepening cohort analysis in FP&A.
- Measuring complex metrics get more nuanced when analyzing cohorts, such as gross revenue churn vs. net revenue churn vs. logo churn
- At this stage, we see treasury management becoming a priority, which includes building the rigor, controls, and compliance for public company reporting becomes very important.
The Pivot and Push to Go Public
The last part of the startup journey is the one where you make the decision to sell your company or file an initial public offering. This is not only a big venture, it’s going to require a lot of focus, it’s going to expose you to a lot of scrutiny, and it’s going to bring a lot of risk.
Preparing for an IPO or even furnishing the company for an acquisition is going to end up with a lot of people looking through your books. Audits are going to be even more detailed than those completed by VC firms. It’s just a way of doing business—an IPO means you are pivoting from selling to qualified investors to the public, requiring you to have your numbers on point.
As a controller, this is going to be your time to shine. With the reporting, process, and control burdens falling squarely on the shoulders of the CFO, controller, and the rest of the finance team, you have a lot of work ahead as you meet with banks and prepare for the big day. Think you’re ready?
Learn More – Startup Scaled to IPO: A Controller’s Perspective
Did you know that the average US Startup goes through 4.4 funding rounds? Add to this the potential for a public offering, and getting from seed to IPO can be overwhelming for those who don’t have the right advice.
If you’re looking to understand how one controller led his organization through each step, we have an upcoming event you don’t want to miss. We’re excited to announce our second webcast for controllers looking to steer their organizations through growth. Startup Scaled to IPO: a Controller’s Perspective, is a highly anticipated event featuring one controller’s journey of leading the finance department through five rounds of investment, managing the day-to-day as the organization approached its IPO, and helping the company reach a $5 billion market cap.
Whether you’re approaching Series A or already have your underwriters out on roadshows, this webcast is a must-attend event for any controller whose firm is bracing for scale. Moderated by Controllers Council Board Chair and Partner at Armanino Lindy Antonelli, we can’t wait to present this to our attendees.