“Series B is where start-ups stop proving they can grow and start proving they can grow profitably.” – Matt Glynn

By Series B, the experiment is over. You’ve validated product-market fit and won over your Series A backers. Now the question is: can you scale sustainably, beat competitors, and edge towards profitability? 

Bigger cheques arrive, but so do bigger demands on governance, compliance, and strategic discipline.

Series B is the second major institutional funding round after Series A. Typical raise: $10m–$50m+, depending on sector and geography.

It usually involves:

◼️Equity financing – often larger VC funds or growth investors.

◼️Higher valuations – reflecting traction and market share gains.

◼️Stricter governance – investor board control, performance covenants, heavier reporting.

This is an important stage of the start-up journey because:

◼️Scaling operations: Expands sales, marketing, and international footprint.

◼️Profitability pressure: Investors expect a credible path to positive unit economics.

◼️Institutional validation: Attracts top-tier funds, opening doors to later rounds.

◼️Governance escalation: Investors demand stronger oversight and controls.

◼️Talent magnet: Bigger funding fuels senior hires and ESOP expansion.

Legal Implications
- Complex preferred share terms (ratchets, vetoes) can strip founders of leverage.
- Poor compliance with securities law risks invalidating the raise.
- Failure to clean up cap tables or ESOP grants during due diligence delays closing.

Founder Relationship Issues
- Dilution disputes intensify as ownership shrinks.
- Conflicting visions between founders and institutional investors over growth vs profitability.
- Founder replacement risk rises as boards professionalise.

Commercial Implications
- Overfunding at inflated valuations sets up future down rounds.
- Misallocated capital (over-hiring, bad market expansions) burns runway.
- Stronger competitors exploit execution missteps.

Operational Implications
- Investor reporting obligations overwhelm immature systems.
- Strain on HR, compliance, and finance functions.
- Expansion without controls creates culture drift and governance failures.

Biz Valuation Issues
- Poor Series B structuring can depress valuations in Series C and beyond.
- Anti-dilution protections from Series A may kick in, penalising founders.
- Weak investor syndicates reduce momentum for later-stage funding.

◼️Strengthen governance – upgrade board reporting, policies, and compliance frameworks.

◼️Plan cap table trajectory – model dilution through Series C/D.

◼️Protect control strategically – negotiate vetoes, drag/tag rights, and founder protections.

◼️Align growth story with profitability – prove unit economics, not just revenue growth.

◼️Run tight due diligence – clean IP, contracts, ESOP, and regulatory compliance.

◼️Select investors carefully – Series B backers shape your exit trajectory.

The above are just a few of the steps you can consider taking. There are many more things that need to be done to ensure the associated risks are effectively and pragmatically dealt with.

Uber (2011) – Scaling Fast, but at a Cost

Uber’s $37m Series B led by Menlo Ventures fuelled explosive international growth. But aggressive scaling without robust governance set the stage for regulatory battles and cultural crises.

Lesson: Raising big is not enough - legal structuring and compliance must keep pace with hyper-growth.

2. Slack (2014) – Using Series B to Cement Market Leadership

Slack raised $120m Series B led by Kleiner Perkins and Google Ventures, valuing it at $1.1bn. The round was used to scale engineering and sales while securing dominant market share in enterprise messaging.

Lesson: A well-executed Series B can lock in market leadership - but only with strong governance and contract discipline around enterprise deals.

3. Canva (2015) – Sustainable Growth with Legal Discipline

Canva’s $15m Series B gave it fuel to expand internationally. Unlike many peers, Canva kept valuations realistic, maintained founder control, and invested heavily in protecting its IP globally. This discipline set the foundation for its later decacorn status.

Lesson: Legal discipline in Series B - especially around IP and shareholder rights - can protect long-term founder value.

◼️Full Ratchet Anti-Dilution: Adjusts investor price per share if later rounds are at lower valuations.

◼️Drag-Along Rights: Force minority shareholders to sell if majority approves an exit.

◼️Tag-Along Rights: Protect minority shareholders by allowing them to join sales initiated by major investors.

◼️Covenants: Legal promises restricting company actions without investor consent.

PAA: What is the purpose of Series B funding?
To scale proven business models and build towards profitability.

PAA: How much equity is typically given up in Series B?
Usually 20–30%, depending on round size and valuation.

PAA: What legal risks are common in Series B?
Complex preferred rights, anti-dilution triggers, compliance failures, and cap table disputes.

PAA: How does Series B differ from Series A?
Series A = proving growth; Series B = scaling sustainably and moving towards profitability.

PAA: What due diligence is critical in Series B?
Cap table, IP ownership, employment contracts, regulatory compliance, and financial reporting.

Series B is the funding round where ambition meets discipline. It is no longer enough to prove you can grow fast - you must prove you can grow sustainably, legally, and with governance that satisfies institutional investors. Whether you become Slack or Uber depends on whether your legal structuring keeps pace with your commercial momentum.

GLS can help your start-up by:

◼️Series B shareholder and subscription agreements

◼️Negotiating ratchets, vetoes, and control rights

◼️Cap table and dilution modelling

◼️Upgrading governance and compliance frameworks

◼️Due diligence readiness (IP, ESOP, contracts)

◼️Cross-border structuring for international expansion

◼️Investor syndicate management

◼️Employment law support for scaling teams

◼️Data and privacy compliance for larger operations

◼️End-to-end Series B project management