Italian company Bending Spoons had largely flown under the radar – until last month. In the space of 48 hours, the company announced the acquisition of AOL and a massive $270 million raise, raising its valuation to $11 billion from the $2.55 billion it had set for early 2024.
Bending Spoons has grown rapidly by acquiring stagnant tech brands like Evernote, Meetup, and Vimeo, then making them profitable through “hold forever” aggressive cost-cutting and price increases. While the company’s approach is similar to private equity, there is one key difference: Bending Spoons has no plans to sell these businesses.
Andrew Dumont, The founder and CEO of Curious, a firm that revives so-called “venture zombies,” is convinced that this “hold on forever” strategy will become increasingly prominent in the coming years as AI-native startups make the old VC-backed software businesses less relevant.
Hold Forever
Our belief is that the Venture Power Law, where 80% of companies ‘fail,’ creates much bigger businesses, even if they’re not unicorns,” Dumont told TechCrunch.
Dumont defines a “great business” as one that can be purchased cheaply and revived quickly to generate “hold forever” sufficient cash flow. This “buy, fix and hold” strategy is the playbook for a growing number of investors, from 30-year-old Constellation Software, which pioneered the model, to new players, including Bending Spoon. tiny, SaaS.group, Emerging VenturesAnd The quiet capitalAccording to Dumont.
Our whole model is to buy these companies, make them profitable and use those earnings to grow the business,” Dumont said.
In 2023, Curious Software raised $16 million in dedicated capital to buy companies that have stalled and can no longer secure follow-on investment.
Since then, the firm has “hold forever” bought five businesses, including UserVoice, a 17-year-old startup that raised $9 million in VC funding from BetaWorks and SV Angel.
“It’s a great business, but the cap table wasn’t aligned with keeping it. These funds get old and these companies sit there,” Dumont said. “We provide liquidity and reset these companies to profitability.”
While Dumont didn’t disclose how much he paid for UserVoice, he said stagnant companies sell for a fraction of the valuations commanded by healthy SaaS startups, which typically sell for 4x annual revenue or more. Based on our conversations, we estimate that “venture zombies” sometimes sell for as little as 1x annual revenue.
By implementing cost-cutting and price-enhancement, Curious can see these businesses achieve 20% to 30% profit margins almost “hold forever” immediately. “If you have a million-dollar business, you’re making $300,000,” he offered as an example.
Hold Forever
They achieve turnaround because, unlike single companies, they can centralize functions such as sales, marketing, finance and other admin roles across all their portfolio companies. We’re not trying to sell the businesses we acquire and don’t need a VC-scale exit, so we can balance more sustainable growth and profitability,” Dumont said.
Asked why VCs don’t urge their startups to be as profitable as VCs, Dumont replied: “Investors don’t care “hold forever” about earnings; they only care about growth. Without that, there’s no VC-scale exit, so there’s no incentive to work with this level of profitability.”
The cash generated from the curious company is then used to buy other startups, Dumont said.
The firm plans to buy 50 to 75 startups like UserVoice over the next five years, and Dumont is confident it will have no shortage of targets to choose from. Curious focuses on acquiring startups that generate $1 million to $5 million a year in recurring revenue, a segment of the software market that private equity shops and secondary investors have historically ignored, according to Dumont.
“We’ve been doing this for less than two years now, and we’ve probably looked at at least 500 companies and we’ve bought five,” Dumont said.
While Bending Spoons’ big valuation increase could validate the “venture zombie” acquisition model, Dumont doesn’t expect much new competition. Increasing profits from stagnation is not easy. “It’s a ton of work,” he said.