Italian company Bending Spoons had been operating largely under the radar until last month. Within 48 hours, the company announced its acquisition of AOL and a major $270 million raise, quadrupling its valuation to $11 billion from the $2.55 billion it set in early 2024.
Bending Spoons has grown rapidly by acquiring struggling technology brands like Evernote, Meetup, and Vimeo, then increasing profitability through aggressive cost-cutting and price increases. The firm's approach is similar to private equity, with one important difference. That said, Bending Spoons has no plans to sell these businesses.
Andrew Dumont, founder and CEO of Curious, a company that is acquiring and reinvigorating what he calls “venture zombies,” believes this “hold forever” strategy will become increasingly prominent in the coming years as AI-native startups make older VC-backed software businesses less relevant.
“We believe that the law of venture power that says 80% of companies fail creates many great businesses, even if they are not unicorns,” Dumont told TechCrunch.
Dumont defines a “great business” as one that can be acquired at a low price and quickly turn around to generate significant cash flow. This “buy, fix, hold” strategy is becoming a strategy for a growing number of investors, from the model's pioneer, 30-year-old Constellation Software, to startups like Vending Spoons, Tiny, SaaS.group, Arising Ventures and Calm Capital, Dumont said.
“Our whole model is to acquire these companies, make a profit on them, and use that revenue to grow our business,” Dumont said.
In 2023, Curious raised $16 million in dedicated funding to acquire distressed software companies that were unable to secure follow-on investment.
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Since then, the company has acquired five companies, including UserVoice, a 17-year-old startup that raised $9 million in VC funding from Betaworks and SV Angel.
“This is a great business, but the cap table wasn't adjusted to sustain it. These funds are getting old and these companies are just sitting there,” Dumont said. “We provide liquidity and reset these companies to profitability.”
Dumont declined to say how much he paid UserVoice, but said stagnant companies are selling for a fraction of the valuation of healthy SaaS startups, which typically sell for more than four times annual revenue. Based on our conversations, we estimate that “venture zombies” can be sold for as low as 1x annual revenue.
By cutting costs and increasing prices, Curious can drive these companies to 20% to 30% profit margins almost immediately. “If you have a $1 million business, you're making $300,000 in revenue,” he said as an example.
These companies achieve turnarounds because, unlike independent companies, functions such as sales, marketing, finance, and other management roles can be centralized across portfolio companies. “We do not intend to sell the businesses we acquire and do not require venture capital-scale exits, so we are able to balance growth and profitability in a more sustainable manner,” Dumont said.
When asked why VCs don't want their startups to be profitable like Curious, Dumont said, “Investors don't care about revenue, they only care about growth. Without that, there's no incentive to operate at that level of profitability because you wouldn't have a VC-sized exit.”
Cash generated from Curious companies will be used to acquire other startups, Dumont said.
The company plans to acquire 50 to 75 startups like UserVoice over the next five years, and Dumont is confident it will have plenty of targets to choose from. Curious focuses on acquiring startups that generate $1 million to $5 million in annual recurring revenue, an area of the software market that Dumont said has historically been ignored by private equity shops and secondary investors.
“We've been doing this for a little under two years and we've probably looked at at least 500 companies and acquired five of them,” Dumont said.
While Vending Spoons' significant valuation hike may vindicate the “venture zombie” acquisition model, Dumont doesn't expect much new competition. Recovering profits from stagnation is not easy. “It's hard work,” he said.