For high-growth startups eyeing their next leap forward, raising a Series B round is both a milestone and a complex challenge. It marks the shift from proving viability to accelerating growth, and that shift comes with sharper scrutiny. From showcasing consistent revenue growth trends to proving product-market fit and managing equity dilution, founders need to understand what investors are really looking for.
This guide explores the key metrics, how to identify the right venture capital firms, and the valuation strategies every South African and global startup should have in place before stepping into a Series B negotiation.
What is Series B Funding and Who Should Raise It?
Series B funding is a type of equity-based financing typically used by companies that have scaled beyond the initial startup phase. At this stage, businesses usually have consistent revenue, a clear market presence and are looking to expand.
Series B typically involves the sale of preferred shares, which may not carry voting rights but often include convertible features, meaning they can be converted into common stock under certain conditions.
Startups at this stage generally have:
A proven business model
Stable or growing revenue streams
Profitability or a clear path to it
A valuation of over $10 million
In South Africa, startups like Stitch and AURA are examples of companies that have successfully raised Series B funding.
Key Series B Metrics: Revenue Growth, CAC vs LTV, Burn Rate
When a startup is looking to raise Series B funding, there are various key metrics that potential investors will look at in order to assess the business. These investors are not investing in potential, they’re backing companies that have already proven product-market fit and are poised for exponential growth.
A startup’s growth rate is the rate at which it is adding new customers and building revenue. A strong, consistent growth curve is critical. Startups failing to grow quickly risk being outpaced by competitors and losing investor interest.
Path to Profitability
Investors want to see a clear path to profitability, even if the startup isn’t fully profitable. Efficient use of capital and reinvestment into scalable growth strategies signal strong leadership and business visibility.
Customer Acquisition Cost (CAC) vs Lifetime Value (LTV)
In Series B, a strong CLV to CAC ratio - ideally 3:1 - is typically expected. This shows customer acquisition efforts are sustainable and that the company is able to monetise users effectively.
Burn rate
A high burn rate can indicate a lack of funding or an unsuccessful business model. While a high burn rate can indicate rapid growth, it can also raise concerns if not balanced with revenue. Investors want to see responsible capital management.
Product-market fit indicators
In Series B funding, product-market fit is demonstrated through:
High customer retention
User engagement
Repeat purchase and long-term contract
A scalable, repeatable business model
6. Team and Market Positioning
The strength of the leadership team, operational expertise, and competitive positioning are all crucial factors. Investors assess whether the team can execute at scale and navigate fluctuating market conditions.
How to Find the Right Series B Investors and VC Firms
While many Series B investors also participated in Series A, their focus can shift significantly. These investors expect a higher level of maturity, and they often bring strategic expertise and global networks to the table.
Typical Series B Investor Profiles
Investors at this stage include:
Larger VC firms
Growth equity funds
Corporate venture arms
Occasionally, late-stage angel investors
Key Sectors for Series B Funding
Series B funding tends to be more common in sectors such as:
Fintech
Healthtech
Mobility
Artificial intelligence (AI) and Robotics
Enterprise SaaS
How to Approach Investors
To maximise your chances of securing Series B funding, you need to build a targeted investor list. This ensures that outreach is strategic, and your pitch is aligned with the requirements of the firm.
What to track in your investor database:
Investor name and firm
Contact details
Investment focus (stage, industry and capital size)
Any similar startups in their portfolio
Investment stage preferences
Leverage platforms like Startup.Africa and local VC networks to identify potential investors. Once you have identified one lead investor, you can leverage their network to find co-investors.
Series A vs Series B Investors: What’s the Difference?
Although it’s common forSeries A and B investors to be the same, their expectations are quite different.
In Series A investors want to see beyond a startup’s potential. They’re looking for startups ready to scale with a great focus on demonstrating product-market fit, showcasing the strength of the team, and presenting a clear path for growth. It’s about proving that early success can be turned into long-term, sustainable growth.
During Series B, investors want to see tangible success. This means demonstrating that the company is performing well and on a clear path to becoming an industry leader. Investors want to see a solid growth strategy showing how the startup will dominate the industry locally and eventually scale internationally.
In Series B, it’s no longer about proving the model, it’s about showing that your model can grow sustainably and dominate the market.
Valuation and Equity Dilution Strategies in Series B Rounds
Startup valuations is a crucial part of the fundraising process, especially in higher capital rounds like Series B. The stakes are higher, and so is the amount of capital raised. Startups must be prepared to defend their valuation and understand how various deal terms affect long-term ownership.
Common Valuation Factors
Revenue multiples based on comparable companies
Growth rate and gross margins
Market opportunity and competitive landscape
Strength of leadership team
Unit economics (LTV:CAC, payback period)
During the negotiations, you will encounter terms such as:
Liquidation preferences
Board composition
Pro-rata rights for future funding rounds
Anti-dilution provisions
Each of these affects future fundraising and founder control, so founders should seek legal and financial advice to navigate them.
Equity vs Debt: What’s Best for Series B Startup Funding?
While equity is the most common financing structure for Series B, some startups also consider venture debt.
Equity Funding
Ideal for startups that still require strategic guidance
Involves giving up ownership stake
Offers access to networks and mentorship
Venture Debt
Suitable for startups with predictable revenue streams
Less dilutive than equity
Requires repayment with interest
Choosing between debt and equity depends on your growth trajectory and capital efficiency. Many startups blend both options to reduce dilution while still raising significant capital.
In Series B funding, cap table management becomes increasingly complex especially as new classes of shares are introduced and more stakeholders get involved.
What Changes in the Cap Table:
New Share Classes
Series B Preferred shares with new terms.
Increased Dilution
New investor equity dilutes existing shareholders.
Option Pool Expansion
More shares allocated to retain and attract talent.
Anti-Dilution Clauses
May protect previous/existing investors and further dilute founders.
Complex Ownership Layers
Founders, angels, early-stage VCs, growth VCs, and employees with shares.
Founders must maintain a transparent, updated cap table and understand how each new investment affects overall ownership.
Series B Term Sheets: Key Terms and How to Negotiate
Term sheets are preliminary, non-binding documents that outline the key terms and conditions of an investment. The term sheet sets the tone for the final agreement, so negotiating it carefully is important.
Key Areas to Focus On:
Valuation and share price
Board composition and control
Liquidation preferences
Founder vesting schedules
Drag-along and tag-along rights
Anti-dilution protection
Negotiation Tips:
Know your non-negotiables (board control, founder equity)
Don’t focus only on valuation, focus on the full deal structure
Use competing term sheets to create leverage
Ensure legal counsel is present in all negotiations
Build a compelling narrative that sells your long-term vision
Founders should avoid deals that limit future flexibility or give too much power to investors too early. Long-term alignment is more important than short-term valuation wins.
Raising a Series B round is a defining moment in a startup’s growth journey. It represents validation from the market and an opportunity to scale aggressively, but it also requires discipline, preparation, and strategic thinking.
To succeed, founders must:
Demonstrate strong revenue growth and unit economics
Approach the right investors strategically
Understand the implications of valuation and dilution
Carefully manage cap tables and term sheet negotiations
For South African and African startups, Series B offers a powerful opportunity to move beyond local success and compete on the global stage.
Lungile is the Digital Editor for Startup.Africa, with a knack for storytelling, technology and innovative ideas. Working with Startup.Africa, she takes simple ideas and turns them into amazing stories.
Lungile Msomi
Lungile Msomi
