1Mby1M Virtual Accelerator Investor Forum: With Christian Czernich of Round2 Capital Partners (Part 2)

Sramana Mitra: It’s like a debt that is paid back as part of revenue share with some multiple of the funding amount.

Christian Czernich: Yes. Then the financing ends once the cap is reached. If there is an exit before that, that’s good. Then we normally exit the business as well. If there is no exit, we just have the revenue share until we reach the cap. This offers a lot more flexibility for the entrepreneur. We don’t force them to sell or pursue a specific path. 

Sramana Mitra: What about geography? Where are you doing this?

Christian Czernich: We are an Austrian-Swedish fund. We are located in Vienna and Stockholm. We are in the German-speaking part of Europe, so that’s Austria, Germany, Switzerland, and the Scandinavian countries. We are also looking into Norway. We have a substantial deal flow. We are looking at one pitch deck per day.

We get pitch decks from all over Europe. We have cases from the UK, France, and Spain but this is not something that we actively pursue. We actively focus on the German-speaking part of Europe. 

Sramana Mitra: How many companies have you invested in following this model?

Christian Czernich: We have invested in 11 companies. We made our first investment two years ago. We are about to invest in a couple of more. Of course we have the COVID crisis. We haven’t been doing investment since the beginning of March, but normally, we do one investment per month. That’s our run rate.

Sramana Mitra: Let’s do a few examples of the kinds of companies that you have invested in. Pick a few from your portfolio and talk us through why you thought that they were a good fit for your model.

Christian Czernich: We predominantly invest in B2B SaaS. This is around 70% of our portfolio. Let’s take the Finnish firm Vainu. That’s a bootstrapped SaaS firm that has more than €10 million recurring revenues already. These are great guys. They managed to bootstrap the business to that size. They don’t want to get involved with any VCs, but still they need some money to accelerate their growth. This was a just a perfect match with our model.

Another case is HomeMaker in Sweden. The company is in proptech. We invested a very small amount in the early stage. They have about half a million euros turnover. We just increased the funding amount as the company grew. They have a clean cap table.

Another company is Hamburg-based Minubo. A couple of angels had invested in them. The company is growing nicely. They have around close to €2 million recurring revenues. They’re operating at breakeven. We invested €300,000 at the beginning and we just recently increased to €500,000. They also have other funding sources. 

Sramana Mitra: Do you have other funds that are doing this model?

Christian Czernich: There are one or two funds in the UK that are running this model. We have seen that there are two new funds in Berlin that are working with this model – not exactly the same but similar. We are the pioneers in Europe. Now there are other funds that are doing the same. That shows that our model is working.

Sramana Mitra: Have you seen any exits yet?

Christian Czernich: We would have had an exit before the COVID crisis. This exit is delayed for the moment. Our portfolio is still very young. We only started two years ago. 

Sramana Mitra: This is a different perspective on startup financing. I have seen a few of these kinds of innovations in early-stage financing which is really important.

The venture capital industry generally is looking for these unicorn businesses which go from zero to $100 million in five to seven years. They’re looking for a billion-dollar valuation. That requires that you have a very large billion-dollar plus TAM.

That category of companies that have that fast growth is not common. Hypergrowth and hyperlarge TAM is not common in business. There are many more $5 million to $50 million ideas than these billion-dollar ideas.

One of the stated goals of One Million by One Million has always been to support these entrepreneurs who are working in the non-unicorn mode. These kinds of innovations are really important because this gives us a financial mechanism with which to finance those other kinds of companies that may not grow at such a high pace and may not be venture-style companies.

Christian Czernich: I couldn’t agree more on that. I had an early career in academics. I was trained in statistics. My focus area was decision theory. There’s a lot of research showing that people are highly influenced by extreme values. Then they overestimate the probability that they will reach these extreme values.

It’s very important to have these role models of tremendously successful startups, but this is not reality for 99.99% of entrepreneurs. The economy, as a whole, is typically built on midsized companies. 

Sramana Mitra: Great. Thank you for your time.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Christian Czernich of Round2 Capital Partners
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