Why Series B is usually the hardest
Let's assume we're in a B2B SaaS company with a solid technological base. You started four years ago and you've raised a $1M Seed and a $5M Series A. You're searching for the best way to scale commercial when Series B comes around the corner, faster than you thought with that $300K burn that crept up on you.
Series B is hard for a simple reason: suspension of disbelief fades and is replaced by an increasingly cold, hard look at milestones and progress. Series B is the round where the rubber meets the road, where the promise has to be met with numbers and projections. Series B is the round where hard nosed investors drive ownership up before your company really starts to scale. Series B is the unloved valley of slow progress that precedes scaling. It's the no-man's land of the startup build phase.
Series Seed is raised on vision, on slides, a prototype and a team.
Series A is raised on hope. This is a blessed time where product is built, early progress demonstrated, and the world is our oyster. We've pushed product out and have enthusiastic early adopters, and the future looks bright.
Series B is raised on mostly one thing: your ability to instill confidence. When you to go raise your Series B, you've driven burn up as you needed to fully staff engineering (these damned "enterprise" features...), start hiring a commercial team that takes its time scaling, get a few hires wrong usually to top it off and have hired a full layer of VP's to show that you have the basis for scale.
This makes the company particularly fragile. Your revenue numbers are low, you're dripping a ton of red ink and show a plan reliant on achieving serious revenue progress right when you're about to run low on cash. There are no excuses for not having a rock solid execution plan, because that's usually all you have.
To top it off, most investors don't like Series B. They'd rather go really cheap and risky on the Series A or back a Series C that is scaling, even if that means paying up. This is the famous Barbell strategy.
At Atlas we used to refer to the three stages as Prove -> Build -> Scale. If Series A is about product market fit, Series B is usually that painful phase when you are "Building" team and product (i.e. spending a lot of money industrializing your company) but are still quite a ways away from Scale.
So there you have it: a tough risk profile, a tough financial plan, and a lukewarm funding market. Series B in my experience truly separates the boys from the men in terms of fundraising ability.
It's amazing to see folks like Christopher Ahlberg at RecordedFuture or (on the younger end) Hardi Meybaum at GrabCad power through Series B round with only early signs of traction and a big ambitious business plan. They breeze through what should be a tough fundraising exercise because they instill confidence and sell the larger opportunity beautifully.
Experienced investors understand that it takes time to build a serious business (read this fab rant from Kirill Sheynkman : Traction, shmacktion) but in a world where everyone is obsessed about early traction raising your Series B has never been more intense.
Or put it a different way: in startup financing land, it never really gets relaxing...