Grow, on your
terms

Revenue-based financing has a capped, known cost that is fixed in the contract. The cost of equity is open-ended and only becomes visible at exit. Example: a software entrepreneur owns 60% and the company raises EUR 6M by issuing 20% new shares at a EUR 30M post-money valuation. The entrepreneur’s stake falls from 60% to 48%. At a EUR 300M exit, the 12 percentage points given up would have been worth EUR 36M to the entrepreneur, 6 times the money raised. With RBF, the total cost of the same EUR 6M is limited by the contractual cap and stays well below that figure. Because the cap rises in steps over time, early repayment costs less. Equity is worth it when the capital truly can’t be raised another way. The mistake is choosing it without running the numbers first.

Round2 Capital funds European software companies with recurring revenue whose product is deeply embedded in customers’ daily operations, workflows, and compliance requirements. It focuses on verticals like cybersecurity, EdTech, business intelligence, business process automation and others. Round2 screens 900 to 1,000 software companies a year and has financed more than 40. It typically invests in companies with annual revenues between EUR 3M and EUR 25M.

With Round2, a revenue-based facility can reach up to 30% of a company’s annual recurring revenue (ARR), and it can grow as ARR grows. This applies where the company has no other debt and the revenue is genuinely recurring. A company with EUR 10M ARR, for example, can raise up to EUR 3M of RBF from Round2. Venture debt, by contrast, is usually sized at a quarter to a third of the last equity round. As ARR rises, follow-on capital becomes available: as a rule of thumb, an extra EUR 1M of ARR supports an extra tranche of about EUR 300K. That lets a company fund growth in steps rather than raising one large round in advance.

Most of Round2 Capital’s investment is revenue-based financing, which is non-dilutive and comes without a board seat. We have a reserved equity pocket. Where Round2 invests equity, it always takes a minority stake and usually a board seat, but this is the exception rather than the rule. As long as the company performs as planned, Round2 doesn’t get involved in how it is run or when it exits, so control and timing stay with the entrepreneurs.

Venture debt, like most conventional private credit, is a fixed-schedule loan with a set interest rate and a short term, usually priced at around 10-13% all-in plus warrants of 1-2%. Revenue-based financing is repaid as a share of revenue up to a contractually agreed cap, so repayments adjust to the company’s ups and downs.

Because repayments move with revenue instead of following a fixed schedule, RBF puts far less strain on a company’s cash flow than fixed debt. RBF suits capital-efficient companies with predictable recurring revenue. Venture debt suits companies that have just closed an equity round.

AI threatens thin software layers that have no proprietary data or workflow lock-in, but strengthens software that is embedded in customers’ systems of record, compliance processes and daily operations. That second category is the one Round2 Capital backs. AI lowers the cost of development (particularly writing code). It does not, however, reduce the cost of replacing software a business runs on. Across Round2’s portfolio, companies spend on average 25-30% of revenue on development, versus around 15% at SAP, so AI-driven gains in development reach their margins faster. Europe’s fragmented languages and regulations (GDPR, NIS2, and DORA) add a moat that generic AI agents can’t easily cross.

Since its first investment in 2018, Vienna-based Round2 Capital has financed more than 40 software companies. 3 of them have defaulted, with write-offs of around 2% of invested capital. Round2 manages or advises about EUR 170M across several fund vehicles. Consolidated revenue across its portfolio grew 26.2% over the last 12 months (Q2 2025 to Q2 2026).

Round2 assesses each company over the full 4- to 6-year term of the financing, not just a short loan cycle. The focus is on software that customers rely on in their daily operations. Because repayments adjust to revenue, companies can absorb weaker periods without a liquidity crunch, which helps keep losses low and provides companies enough time to execute on their growth plans.

If revenue falls, repayments fall with it. If the company is sold or refinanced early, it repays the cap that applies at that point, which can be below the maximum cap. Because the cap rises in steps over the term, an early exit or refinancing costs less than running the financing to the end. Only if the revenue share has repaid less than the agreed cap by the end of the term is the remaining difference settled at that point. There are no fixed installments to meet in a weak quarter, which is why RBF suits companies whose revenue doesn’t grow in a straight line.

Banks rarely lend to software companies because there are few physical assets to secure a loan against, and Basel III and IV capital rules make unsecured lending expensive for them. Round2 Capital closes the gap between venture capital and private equity: it finances software companies that have outgrown early-stage VC but are not yet a fit for a buyout. This gap is far wider in Europe than in the US. Measured against the US, the financing available to European companies is about 1:12 in the growth stage, 1:7 at venture stage, and 1:3 for equity overall.

RBF lets a company grow into a higher valuation before it raises equity, or avoid a further round altogether. Every EUR of growth funded with RBF instead of equity means less dilution later. If the company does raise equity, it does so from a larger revenue base and on better terms. At exit, the RBF is repaid at the cap that applies at that point, and the software entrepreneurs keep the full value of the shares they still own. The timing of the exit stays with them.

A 4- to 6-year term lets a company fund growth without needing a refinancing or liquidity event after 18 to 36 months. Conventional loans are usually repaid in fixed instalments over a short term, which often forces a company to raise new money before the investment it funded has started to pay off. With Round2, most of the return is earned towards the end of the term, so repayments stay manageable while the company grows. The longer term also reflects how Round2 assesses risk: it looks at whether a company’s software is embedded in its customers’ operations for many years, not only at its cash position next year.

Round2 Capital finances European B2B software companies with annual revenues between EUR 3M and EUR 25M, most of which recurring. What matters most is the quality of that revenue, not only its size: strong retention, ideally with net revenue retention above 100%, a diversified customer base, solid gross margins and steady growth. Profitability is not a strict precondition, but the company needs a credible path to funding itself from its own cash flow. Software that is deeply embedded in customers’ daily operations counts for more than a high growth rate built on heavy burn.

The process starts with an initial call and a first look at the key figures, followed by an indicative offer, a term sheet, due diligence and the final contracts. How long it takes depends largely on how well the company is prepared: with a well-organised data room, a decision can be reached within few weeks. Round2 typically asks for monthly management accounts for the last 2 to 3 years, an ARR or MRR schedule with an ARR bridge, cohort and retention data, the business plan, the cap table, and an overview of existing debt and material contracts.

The capital is meant to fund growth: hiring in sales and development, expanding into the exiting market or new markets or building out the product. It can also finance acquisitions and buy-and-build strategies, buy out existing shareholders who want to exit, or refinance existing debt on terms that fit the company better. In every case, the financing should fund something that strengthens the company’s recurring revenue, since that revenue is what repays it.

Yes. RBF from Round2 works alongside existing venture capital investors, and many companies use it to extend their growth path before the next equity round. Unlike venture debt, it does not depend on a VC backer. Existing debt is possible too, but it affects how much Round2 can provide. As described in question 4, the facility can reach up to around 30% of ARR. Round2 scrutinizes how much other debt is already in place, how it is secured, and whether it ranks ahead of or behind Round2’s facility.

Round2’s financing is usually secured, and the security package depends on the company’s situation, in particular on any existing debt and how it ranks. Covenants and warrants are not applied as standard terms. Round2 uses them selectively, where the situation calls for it. Because repayments are calculated from revenue, companies report their revenue and key figures to Round2 monthly. Beyond that, reporting stays lean, and as long as the company performs as planned, Round2 doesn’t get involved in how it is run.