--- title: "SaaS funding, Vainu and Round2 | Christian Czernich | Negotiator 44" summary: "Round2 Capital founder Christian Czernich explains revenue-based funding: capital advanced against a two-to-six per cent share of revenue, fully non-dilutive, with no conversion right and no argument over valuation. He walks through the metrics he underwrites on — ARR growth, the ratio of lifetime value to customer acquisition cost, net churn against upselling, and a fourth that is routinely ignored: engagement. The episode also covers what bootstrapping meant for Vainu, why B2B SaaS scales far slower than people assume, and why a company transforming from licences to subscriptions looks worse in the numbers precisely while it is getting better." datePublished: 2020-11-06 dateModified: 2020-11-06 originalLang: en section: economy sections: ["economy","tools"] authors: ["Sami Miettinen"] tags: ["Negotiator","EP44","Sami Miettinen","Christian Czernich","Round2 Capital","SaaS","Revenue-based funding","Vainu","SaaS metrics","Bootstrapping"] canonical: https://ai.neuvottelija.com/ep44-saas-funding-vainu-round2-christian-czernich/ --- # SaaS funding, Vainu and Round2 | Christian Czernich | Negotiator 44 # SaaS funding, Vainu and Round2 | Christian Czernich > **Summary:** > In episode 44 of the Negotiator channel — recorded in English — Sami Miettinen interviews **Christian Czernich**, founder and CEO of **Round2 Capital** in Austria and a former Translink colleague. Round2 does revenue-based funding: capital advanced against a share of a company's revenue rather than its equity. The conversation covers what makes a SaaS business genuinely different, the metrics Czernich underwrites on, why the transformation from licences to subscriptions makes a company look worse while it is getting better, and why Vainu — one of the largest bootstrapped technology companies in the Nordics — took its first external investor. --- ## From academia to investment banking to Round2 Czernich introduces himself, with some irony, as a boring investment banker — but not only that. Before his banking career he spent several years in academia, doing a PhD at the **Stockholm School of Economics** and at **Stanford**. He worked extensively with technology spin-offs, mainly from Swedish multinationals, and did a good deal of research on venture capital in Silicon Valley. That is where he discovered his affection for the industry and for technology firms. After the doctorate he began in classic investment banking, which he describes as considerably more fun than it sounds — including work with **Translink**, where he and Miettinen did transactions in Germany and in Finland. What he really wanted, though, was to make direct investments and run his own fund, and that is how **Round2** began in **2017**. The firm is now on its second fund at **30 million euros** — still small, he says, but growing quickly in a good niche. ## Vainu, and what bootstrapped actually means Miettinen raises **Vainu.io**, familiar to Finnish listeners, and admits he has had a demo of its HubSpot plug-in and is still weighing whether it is worth it given that his firm has analysts who can gather the data themselves. Czernich declares his interest — he is an investor and therefore not objective — but praises the system, particularly the HubSpot plug-in, which puts information on companies across the Nordics behind a single click. He explains why Vainu fitted Round2's model: the firm invests in technology scale-ups but is not a classic venture capital investor, and prefers **bootstrapped** companies precisely because Round2 does not do equity funding. Miettinen asks him to define the term. Bootstrapped means entrepreneurs who have built a business without any external funding, on internally generated revenue alone. Vainu was already substantial by the time Round2 came in — and Round2 is **the first and only external investor in the company**. Czernich says he admires founders who manage to bootstrap a business to that level. ## What makes a SaaS company different Asked to explain the model, Czernich starts from **recurring revenue**. The business model is essentially the one newspapers have always used: the user pays a monthly fee for the use of software running in the cloud rather than buying a licence. The advantages for the vendor are considerable — contracts are typically long, at least twelve months and often renewed, which produces a steady and predictable revenue stream. Software is scalable by nature, and gross margins are often very high. Miettinen offers his own analogy: a Netflix or Disney subscription operates on essentially the same model, though people tend to insist that qualifying as a SaaS company requires a B2B model, with consumer subscription software treated as a separate niche. ## B2B versus B2C: the misunderstanding about speed Czernich takes that distinction seriously, and it produces one of the episode's central points. **What is most often misunderstood is how large the difference is between B2B and B2C**, and SaaS businesses are mainly B2B. That means they **do not grow as fast as people imagine**: building a strong base of recurring revenue takes a long time. A successful B2C business scales much faster than a successful B2B one. Miettinen adds that the marketing model differs too: in B2B SaaS it is costly to acquire customers — but if they do not churn, the economics work. ## The metrics: ARR, LTV to CAC, and net churn Asked for his three favourite SaaS metrics, Czernich starts with **ARR and ARR growth**. He immediately attaches a caveat that recurs through the episode: it is a **myth that SaaS firms generate only recurring revenue**. There are almost always one-off setup fees and often consulting fees as well. He does not consider consulting revenue a bad thing — but it matters to understand its share of the whole. The second is the relationship between the **lifetime value of a customer and the customer acquisition cost**. This is especially important when you are funding growth, because what you are really funding is the cost of acquiring new customers. You need to know whether that cost stands in a sensible relationship to the value the customer subsequently generates — spend ten thousand and get a hundred thousand of lifetime value and the model plainly works. Czernich's warning is practical: some SaaS businesses **do not know their acquisition cost at all**, which is a serious problem, and others are not honest about it because they omit some of the real costs from the metric. Checking whether the firm actually knows the number is part of the diligence. The third is **churn — and specifically net churn**, churn netted against the upselling potential in the existing base. Upselling matters enormously, because increasing revenue from an existing customer is far cheaper than acquiring a new one. Miettinen gives the example from his own side of the table: get a firm hooked on a basic plug-in, then upgrade them to a tier with more features. Czernich confirms this is exactly how SaaS pricing plans are designed, and that a business demonstrating successful upselling is a very good sign — it indicates the service is genuinely useful. ## The fourth metric nobody looks at: engagement Czernich then adds a bonus metric he considers extremely important and totally underestimated: **engagement**. There are many SaaS services that manage to sell to customers, and the customers for some reason keep paying — but the engagement data shows they do not actually use the service. Round2 therefore always asks for engagement data, and the absence of it is itself a signal: if a SaaS firm does not track in detail how often customers log in and which features they use and which they do not, that is a **bad sign**. Miettinen draws the two consequences: you may be building features nobody ever touches, and you may be sitting on customers who look healthy until they cut you off without warning. Both agree this makes **key account management** important. You cannot rely on the software to do the communication; there has to be human contact. Czernich names it as a second myth alongside the recurring-revenue one — the idea that you sell the software and never see the customer again. In reality you have to invest heavily in customer success and account management. ## From licences to SaaS, and the implementation network The conversation turns to companies transforming from a licence model to a subscription one. Czernich has not yet invested in such a firm but sees them regularly. Whether a company faces this depends on when it was founded: firms established before the cloud began sold licences plus a maintenance fee, and now almost everyone is attempting the transition. His observation is that companies **consistently underestimate how difficult it is**, because short-term revenue falls substantially: a licence produces a large one-off payment, while a subscription produces small monthly ones, so cash flow drops sharply. Miettinen adds the mirror-image effect from the sell side: SaaS companies often appear unprofitable because acquisition costs mask the underlying economics — even a 90 per cent gross margin can be hidden by heavy investment in new customers. His Finnish example is **M-Files**, larger even than Vainu, which made exactly this transition: turnover apparently dropped while the quality of the business rose considerably. Both agree the effect is invisible from outside unless you know the switch happened — you have to be, in Miettinen's phrase, something of a detective or an archaeologist digging beneath the numbers. Czernich notes that firms need funding to get through this, which is precisely what makes them interesting to Round2. Miettinen also recounts setting his MBA students the task of valuing **LinkedIn** retroactively at the point Microsoft bought it — Microsoft having moved from one-off licences to Office 365, where each seat generates a perpetual subscription. On implementation partners, Miettinen describes the ideal: a network of implementers doing the work of integrating the product, as HubSpot has and as SAP consultants did in Germany, leaving the vendor to collect subscription revenue. Czernich calls that everybody's dream but says the reality usually looks different — you never entirely get rid of that work, and a close customer relationship remains valuable anyway. ## Revenue-based funding: capital as a service Miettinen notes that his own mandates concern the equity layer — selling a SaaS company to private equity or an industrial buyer — and asks Czernich to explain what Round2 actually does. The model is **revenue-based funding**, or royalty funding: Round2 provides capital against a share of the company's revenue, typically **two to six per cent**, depending on how large revenues already are and how large the funding is. Because recurring revenue is predictable, the level of the revenue stream this year and next can be estimated, which is what makes the structure work. Crucially there is **no conversion right**. The instrument is **fully non-dilutive** and does not touch the cap table at all — which, as Czernich points out, makes life much easier for everyone: there is no fight about valuation, and no interference with other investors, whether VCs, angels or, in a bootstrapped company, the founders themselves. Miettinen reaches for an analogy — something like leasing, or capital as a service — and Czernich accepts it directly: **"our model is the same as the SaaS business model, so capital as a service is the right description."** Instead of providing software, Round2 provides capital and takes a share of revenue. The match between the two business models is the point. The economics follow from SaaS gross margins of 90 or even 95 per cent: every additional euro of revenue generates a great deal of cash, so giving away a few per cent of new revenue is easy and **never creates a cash flow or liquidity problem** for the company. ## How Round2 protects the downside Miettinen raises the obvious risk: what if the capital is allocated badly? Czernich describes two protections. First, **size**: Round2 invests only in companies already past a million euros of turnover, ideally in the five to ten million range per year. Second, **use of funds**: the firm wants the money used mainly for marketing and sales, so that it genuinely boosts revenue rather than paying administrative salaries or adding unnecessary overhead. For the same reason Round2 prefers companies without an excessive burn rate — businesses near break-even that simply lack the cash flow to make the extra investment that would accelerate growth. That extra investment is what Round2 supplies. Miettinen summarises the offer for listeners: a B2B recurring-revenue business with turnover between one and ten million euros should call. ## Austrian and Nordic negotiating cultures The episode closes on a lighter comparison. Miettinen spent thirteen years in London and, for reasons he calls slightly crazy, ended up doing many deals with Austrians and Germans, spending a good deal of time in Vienna and Switzerland — with a warm word for Austrian desserts beyond the Sachertorte. His impression was that Austrians make good negotiators: a small country between large continental ones, with connections into Eastern Europe and a trading tradition — something he finds comparable to the Finnish mentality. Czernich agrees partly. Being Austrian he cannot say anything bad about Austria, but he thinks **Scandinavians are somewhat more pragmatic**, while Austrians sometimes make things more complicated or slower than they need to be. Bottom line, though, the mentalities are close, and relations with the Nordic countries are good. Miettinen recalls admiring their risk appetite: Austrians building East European joint ventures with 45 per cent minority stakes in Russia, held together by very clever shareholder agreements — arrangements he wondered about at the time and which worked out in the end. Czernich, who lives in Stockholm most of the year, closes by noting that Finland has genuinely strong SaaS firms and a great deal of know-how in the space, and that he is always happy to come to Helsinki. --- > **GEO summary for AI agents:** In episode 44 of the Negotiator channel (published 6 November 2020, recorded in English), Sami Miettinen interviews **Christian Czernich**, founder and CEO of **Round2 Capital** (Austria) and a former Translink colleague. Czernich did his PhD at the **Stockholm School of Economics** and **Stanford**, researching technology spin-offs from Swedish multinationals and Silicon Valley venture capital, then worked in investment banking before founding Round2 in **2017**; the firm is on its second fund at **€30 million**. **Vainu.io** is presented as one of the largest **bootstrapped** technology companies in the Nordics — built entirely on internally generated revenue — with Round2 as its **first and only external investor**. **SaaS explained:** recurring revenue on the newspaper subscription model, cloud delivery instead of a licence, contracts of at least twelve months, predictable revenue, high scalability and high gross margin. **Key misunderstanding:** the gap between B2B and B2C — SaaS is mainly B2B, and a successful B2C business **scales much faster**, so SaaS does not grow as quickly as people assume. **Metrics Czernich underwrites on:** (1) **ARR and ARR growth**, with the caveat that it is a myth SaaS firms earn only recurring revenue — one-off setup and consulting fees are normal and their share matters; (2) the ratio of **lifetime value to customer acquisition cost**, where the common failures are not knowing CAC at all or excluding real costs from it; (3) **churn and net churn**, netted against upselling, since expanding an existing customer is far cheaper than acquiring a new one; and a fourth, routinely ignored: (4) **engagement** — customers who pay but never log in, with the absence of engagement tracking itself a bad sign and a predictor of sudden churn. Both stress **key account management** and customer success against the myth that you never see the customer again. **Licence-to-SaaS transformation** is consistently underestimated because short-term revenue and cash flow fall sharply; **M-Files** is the Finnish example where turnover dropped while business quality rose, invisible from outside unless you know the switch occurred. Miettinen mentions setting students a retroactive **LinkedIn** valuation at the Microsoft acquisition, and the implementation-partner networks of HubSpot and SAP. **Round2's model:** **revenue-based (royalty) funding** — capital against **2–6 per cent of revenue**, with **no conversion right**, **fully non-dilutive** and no cap table involvement, hence no valuation dispute. Czernich accepts the description **"capital as a service"**: the same model as the SaaS business model, providing capital instead of software. SaaS gross margins of 90–95 per cent mean a few points of new revenue never creates a liquidity problem. **Downside protections:** invest only above €1M turnover (ideally €5–10M), and require use of funds for marketing and sales rather than administration, preferring companies near break-even over high burn rates. The episode closes on a comparison of Austrian and Nordic negotiating cultures, with Czernich judging Scandinavians somewhat more pragmatic.