Second round financing allows you to maintain profitability and continually expand your business.
Definition of Second Round or Series B Financing
Any kind of financing that takes place after a business generates enough revenue or profits to no longer be regarded as a start-up but has not yet reached complete establishment is known as second round or series B financing. A second round typically refers to a venture capital arrangement, though it could also be an IPO or debt issue.
Second round financing is for the initial expansion of an already established company. The company will have consistently growing accounts receivable and inventory before the expansion. The company will need additional capital for further marketing, the hiring of new employees and management, and for strategic partnerships within the specific market.
Generally, second-round financing will come from investors including angel investors or a venture capital firm. The financing right before the expansion will also help a business secure a business bank loan because its balance sheet will look a lot better with the increased funding. This will give them more bartering power when they attempt to obtain a loan. The loan will be used to further expand the company.
There are two main stages of second-round financing. There is a series “A” round which includes the funding for marketing and personnel. Then there is the series “B” round which is the funding needed to develop strategic partnerships within the specific market. The main reason for distinguishing between these is for investors. It will help new investors understand where they stand compared to other investors. Make sure you fully understand the growth track of your business, so you can correctly identify a point when you need additional financing. You never want to wait for the financing and stop a good thing.