What is Series B Funding

Accounting and tax considerations for startups raising Series B funding

When a startup raises money from investors, it typically does so in multiple rounds of financing. The first round of financing is called a “seed round,” the second is called a “Series A,” and subsequent rounds are typically called “Series B,” “Series C,” etc.

As a startup goes through these different rounds of financing, the amount of money raised usually increases. For example, a typical seed round might raise $1 million, while a typical Series A might raise $3 million.

One thing that doesn’t usually change as a startup raises more money is the accounting and tax treatment of the different rounds of financing.

For accounting purposes, all of the money raised in each round of financing is considered to be “equity,” and it gets recorded on the balance sheet as “shareholders’ equity.”

For tax purposes, the different rounds of financing are generally treated the same way. The IRS does not treat money raised in a Series A or Series B any differently than money raised in a seed round.

The only exception to this rule is when a startup raises money from “accredited investors.” Accredited investors are individuals or entities that meet certain criteria, such as having a net worth of $1 million or more.

If a startup raises money from accredited investors, then the money is considered to be “debt” for tax purposes. This means that the money does not get recorded on the balance sheet as equity.