Welcome back to The Cap Table Newsletter! This bi-weekly newsletter shares key insights on angel investing, start-ups, and investment opportunities.
This week, we’re talking about one of the most misunderstood cliffs in venture: Series B.
Not because the company is “bad.” Not because the founders “lost it.” But because Series B is where the story has to turn into a system.
At Seed and Series A, you can still sell potential. At Series B, investors want proof that the machine works…
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The Series B Reality
Series B is when the market stops rewarding narrative alone.
The check sizes get real fast.
Data shows median VC deal size in 2025 was ~$32.4M for Series B (vs ~$14.0M at Series A).
That step up changes everything:
The fund you are pitching is underwriting a real ownership target
The partners have to believe you can build a durable growth engine
The margin for “we’ll figure it out next quarter” disappears
And here’s the part founders do not expect: the bar is not just higher, it’s different.
Series A is “can you grow.” Series B is “can you repeat growth efficiently.”
Why “Great” Still Fails Here
Most “great companies” that miss Series B don’t miss because they have zero traction.
They miss because something essential breaks when they try to scale...
1) The product works, but retention does not compound
You can brute force early growth with hustle, network, and a great story.
But Series B investors are looking for evidence that customers stick, expand, and refer. If retention is soft, your growth becomes a treadmill.
This is where companies realize:
They built something people try, not something people keep
The product has users, but not a habit expansion is promised, not proven
That is a Series B killer.
2) The go-to-market motion is not a machine yet
At Series A, you can have a few reps and a founder-led motion and still look “real.”
At Series B, buyers ask:
Does pipeline come from repeatable channels or one-off heroics
Do deals close because the founder is in the room does your sales cycle match your cash position
Does pricing reflect value or panic
If the motion isn’t predictable, the story starts to feel fragile.
And it’s happening while the market is more selective. In 2024, PitchBook noted exit activity was constrained and many outcomes were smaller than investors need, which raises the pressure on “quality growth” versus “growth at any cost.”
3) Unit economics get exposed
Series B is where investors stop tolerating math that only works in a deck.
Common problems:
CAC rising as you move from early adopters to the real market
Payback periods stretching as the sales cycle lengthens
Gross margins that looked fine, until you added implementation, support, and real usage
Services hiding inside “software revenue”
A lot of companies look great at $1M to $3M ARR. Series B is when you have to prove the model at $5M to $20M.
That’s also why this stage often becomes a reset. Even macro data shows how much value can stay locked up without clean paths to liquidity, forcing investors to be more disciplined about which companies truly scale.
The Quiet Stat That Explains It
PitchBook highlighted something telling about outcomes:
In 2024, more than 70% of exiting companies had raised no further than Series A, and nearly 90% of exits happened at Series B or earlier.
That does not mean those were “bad companies.” It means a huge portion of the market never becomes a compounding growth business.
Series B is often where that truth becomes undeniable.
What Series B Investors Actually Want to Believe
If you’re a founder aiming for Series B, the goal is to make three things feel inevitable:
1) Retention is real Not just usage. Not just satisfaction. Real stickiness that holds up quarter after quarter.
2) Growth is repeatable Channel clarity, sales process clarity, and a pipeline engine that doesn’t depend on the founder’s calendar.
3) Spend creates output Not “we hired a bunch of people.” But “here’s what changed in conversion, payback, and expansion as we scaled.”
That is the Series B story.
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My Take
Series B is not just “another round.”
It is the moment the market asks: Is this a great product, or a great business?
The teams that win Series B are not always the flashiest.
They’re the ones who built the unsexy stuff early: cadence, instrumentation, pricing discipline, pipeline hygiene, and a product that compounds.
Great companies fail at Series B when the fundamentals are still dependent on momentum.
Series B is where momentum stops being a strategy.
Until next week, Elana ✌️
Resources
If you enjoyed this week’s newsletter - feel free to check out some of our past articles:
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