A Deep Dive into the Venture Capital Pool

You’ve probably seen quite a bit of news lately around Passport’s Series B round of funding. And with that has come a lot of excitement — from our team, the industry, venture capitalists, you name it. You may have even seen our team members sharing about it on social media. No matter how you’ve come across it, you can tell this is a monumental moment for our company and the next big step in things to come.

Closing an $8 million round of Series B funding sounds great regardless if you’re familiar with venture capital financing or not, but to an outsider looking in, you may be wondering…what does this mean exactly? And why does this matter so much for their company?

Good questions.

First off, it’s important to know the basics in venture capital financing, a.k.a the way that startups obtain investment. This will typically come from venture capitalists and other institutional investors (unless you’re lucky enough to have friends with very deep pockets).

In venture capital financing, there are different stepping stones, known as “rounds”. These include: Seed, Series A, Series B, and Series C. Let’s dive into each:

Seed Round

When you’re going for a Seed round of funding, you’re looking out onto the water ready to jump in. You have a fantastic idea, a dream, and a small team around you that’s ready to make it happen– if someone will help you make it happen. A Seed round of funding gives you that nudge.

Series A Round

After the Seed round comes the Series A, when you’re really dipping your toes in the water. You have a product and you’re getting some traction with clients so you can prove to investors that you have a clear vision of where you want your company to go.

Series B Round

Next comes the Series B, where you’re really swimming. You’re no longer dreaming or envisioning, but really moving and catching speed.

When you’re going for your Series B, you’ll most likely have a full team in place, you’re building out your product, and executing plans. You may be looking to expand outside of the U.S. or even at buying other companies.

You’ll typically see additional investors come on during this round.

Series C Round

By the time you’re going for your Series C, you’re swimming major laps. Series C is all about scaling and continuing to grow. A Series C round of funding is accelerating you to the next level — basically a lot of growth and possible full-blown international expansion.

You might see other sources of capital coming in at this stage from private equity firms, hedge funds, investment banks, big secondary market firms, etc.

So what comes after a Series C round, you ask? Typically an IPO.

Now keep in mind, this is all easier said than done. Venture-backed capital certainly doesn’t fall into your lap and is filled with plenty of blood, sweat, and tears. Let’s just say that no one doggy paddles their way to venture capital funding. Even though the National Venture Capital Association reported that in 2015, capital invested into startups reached its highest level since 2000, getting venture capital funding in the first place is no easy feat.

According to data by Fundable, only .05% of startups even become funded by venture capital firms in the first place. You read that right.

So making it as far as a Series B round of funding is pretty incredible in itself. Not only that, but many will argue that raising capital for a Series B round is the toughest out of them all. That’s because companies at this stage aren’t necessarily the “sexiest” for investors — it’s a much easier option to invest in a risky but cheap Series A or a more expensive Series C that’s scaling.

Neal Sangani, Passport’s VP of Finance, discusses this in more detail:

“The Series B is a challenging phase in the venture capital funding cycle as a company transitions from signs of early traction to more ambitious and measurable financial targets. Per data compiled by CB Insights, historically only 50-60% of companies that raise their first post-Seed round, or Series A, later raise a second post-Seed round, or Series B.  A key factor in this difficulty is the large investments a company needs to make at this stage to provide a foundation for scale, which also drives a slim margin for error as a company strives to meet its financial targets.”

While going for our Series B round of funding, Passport had already established itself as the clear market leader. Between rapidly growing our list of clients, being awarded municipal contracts, and continuing to innovate in the mobile payment space, we’ve been busy swimming. 

We chose the investment round because we plan to bring on more team members, build upon our industry-leading enterprise platform, grow our presence across the U.S., and even expand in select international markets.

As we continue to innovate, we look forward to making even bigger waves.