What is a Series B?

SignalRank has built a diversified index, by investing in up to 30 Series B per year. Series Bs are our exclusive entry point.

This led some wag to note that SignalRank offers ‘seabass’ – Series Bs As A Service.

But what is a Series B?

Companies raising a Series B can look radically different. Safe Superintelligence raised a Series B with no released product and no revenue. Mercor scaled to $100m+ in revenue before its Series B. What unites them is not operating uniformity, but structural and market context.

We see three core characteristics for a Series B:

• Priced institutional round with new class of preferred stock. The Series B establishes an agreed valuation for the company and creates a new class of preferred stock which typically sits at the top of the waterfall, providing enhanced downside protection for new investors.

• A third (or later) investor commitment. The Series B is typically at least the third round of financing for a company. Follow-on capital attracts greater scrutiny than initial bets; it is easier to forgive a first investment error than a second or third. A Series B therefore reflects accumulated conviction from multiple decision points.

• Market signal. Announcing a “Series B” has signaling power, suggesting product/market fit. The capital is typically for scaling an identified growth engine, not initial product development. Many Series B companies are transitioning from founder-led execution to organizational scaling. Series B stage companies will attract a higher caliber of potential employees, customers and employees.

SignalRank is a systematic investment company that leverages data to identify the highest potential Series Bs which we access by financing the pro rata positions of existing early stage investors. Why is the Series B round SignalRank’s exclusive entry point?

• A “Series B” demonstrates product/market fit.

  • It is received wisdom that the Series B round is the most challenging to raise because investors are no longer just underwriting potential. They are underwriting progress.

  • Most Series A companies do not raise a Series B (~65% per our research). A “Series B” puts a company into a distinct subset of the ecosystem, clearly differentiated to companies raising a Series A extension / plus.

  • Our algorithms at SignalRank are designed to establish whether the “Series B” is indeed a marker of potential, or simply a heavily disguised bridge round.

• Compelling returns with minimal post IPO risk

  • A Series B investor is still early enough to benefit from power law dynamics. 20x+ returns from Series B are entirely achievable.

  • At the same time, Series Bs tend to be largely insulated from post IPO risk which disproportionately impacts later rounds, especially where investors are subject to post IPO lockup periods. Even in companies which have performed poorly as public companies, Series B investors have often seen tremendous returns.

• Sufficient data for a risk-adjusted quantitative approach

  • A Series B is usually at least the third time that the company has been vetted by investors. This is particularly useful for our approach as our algorithms focus exclusively on investor patterns and behaviors.

  • Our methodology analyzes pre A, Series A, and Series B data to identify high potential companies. With this approach, we can increase the probability of investing in a unicorn from Series B to approximately 30% (versus <10% for the market average). Our back tests indicate a 2x+ return for our investors relative to the market average.

• Attractive pro rata allocations for seed investors

  • The Series B round is typically the round where it becomes problematic for seed investors to maintain their pro rata stakes, allowing for opportunistic growth investors to acquire larger stakes in Series B companies.

  • 99% of seed managers do not have opportunity funds. SignalRank aims to empower these seed managers by enabling them to maintain their pro rata in their winning companies.

  • Because the Series B round is still early in a company’s lifecycle, seed investors typically still play a somewhat meaningful role. SignalRank helps seed managers preserve their ownership and voice in the company for longer by retaining their stake at pro rata levels.

So, yes, it is fair to say that we offer seabass. But more importantly, we offer a systematic way to access one of the most structurally attractive entry points in venture capital.