In the fast-paced world of technology, where innovation often eclipses sustainability, a quiet revolution is unfolding. Companies that once burned bright with venture capital funding, only to see their growth stall, are finding new life through a strategic approach that’s gaining significant traction. At the forefront of this movement is Italian tech giant Bending Spoons, which recently made waves by acquiring AOL and securing a staggering $270 million in funding, catapulting its valuation to $11 billion – a fourfold increase in mere months.
This remarkable ascent isn’t a fluke. Bending Spoons has honed a powerful strategy: identifying and acquiring established, yet stagnating, tech brands like Evernote, Meetup, and Vimeo. Their secret sauce? A potent blend of aggressive cost-cutting and strategic price adjustments that swiftly transforms these underperforming assets into highly profitable ventures. While this modus operandi might resemble private equity, Bending Spoons offers a crucial distinction: their intention is not to flip these businesses, but to hold and nurture them indefinitely.
This “hold forever” philosophy is a cornerstone of a burgeoning investment strategy, according to Andrew Dumont, founder and CEO of Curious. His firm specializes in acquiring and revitalizing what he aptly terms “venture zombies” – businesses that, despite their initial promise, have lost their momentum and become less relevant in the face of AI-native disruptors. Dumont is a firm believer that this approach will become increasingly prevalent as the tech landscape evolves.
The Power of the ‘Great Business’ Beyond Unicorn Dreams
Dumont’s perspective challenges the traditional venture capital mantra, which often focuses on the “power law” – the idea that a few massive successes (unicorns) compensate for many failures. “Our belief is that the venture power law, in which 80% of companies ‘fail’ produces many great businesses, even if they’re not unicorns,” Dumont explains to TechCrunch. He redefines a “great business” not by its potential for astronomical valuation, but by its inherent ability to be acquired at a low cost and rapidly resuscitated to generate substantial cash flows.
This “buy, fix, and hold” playbook is being embraced by a growing roster of investors. From the seasoned Constellation Software, a pioneer in this model for over 30 years, to newer entrants like Bending Spoons, Tiny, SaaS.group, Arising Ventures, and Calm Capital, the strategy is proving its mettle. “Our whole model is to buy these companies, make them profitable, and use those earnings to grow the business,” Dumont elaborates.
Curious: Breathing New Life into Stalled Ventures
Curious has already made significant strides in this space. In 2023, the firm raised $16 million specifically to acquire software companies that have hit a growth plateau and can no longer attract follow-on investment. One notable acquisition is UserVoice, a 17-year-old startup that had previously garnered $9 million in venture funding from prominent investors like 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 just sit there,” Dumont observes. “We provide liquidity and also reset these companies for profitability.”
While the exact acquisition price for UserVoice remains undisclosed, Dumont highlights a crucial market inefficiency: stagnant companies often trade at a fraction of the valuation commanded by thriving SaaS startups, which typically fetch four times their annual revenue or more. Based on Dumont’s insights, “venture zombies” can sometimes be acquired for as little as one times their yearly revenue. This significantly de-risks the investment and provides ample room for improvement.
The Strategy: Cost-Cutting, Price Adjustments, and Centralized Operations
The turnaround for these acquired companies is achieved through a two-pronged approach: rigorous cost-cutting and strategic price increases. This allows Curious to immediately boost profit margins to an impressive 20% to 30%. “If you have a million-dollar business, you’re kicking off $300,000 in earnings,” Dumont illustrates, emphasizing the potential for rapid profitability.
A key factor in their success lies in their ability to centralize essential functions across their portfolio companies. Unlike standalone entities that bear the full overhead of sales, marketing, finance, and administrative roles, Curious can consolidate these departments, achieving economies of scale and operational efficiencies. This synergistic approach not only reduces costs but also enhances overall performance.
“We’re not trying to sell the businesses we acquire and don’t need VC-scale exits, so we can balance growth and profitability more sustainably,” Dumont asserts. This long-term vision contrasts sharply with the typical VC exit strategy, which often pressures companies into prioritizing hyper-growth at the expense of profitability.
Why VCs Don’t Always Prioritize Profitability
When questioned about why venture capitalists don’t push their portfolio companies towards profitability with the same fervor, Dumont offers a candid explanation. “Investors don’t care about earnings, they only care about growth. Without it, there’s no VC-scale exit, so there’s no incentive to operate with that level of profitability.” This highlights a fundamental divergence in investment philosophies and timelines.
The cash generated from these revitalized companies is then reinvested into acquiring more startups, creating a self-sustaining growth engine for firms like Curious. Dumont’s ambitious target is to acquire between 50 and 75 such startups over the next five years, a goal he believes is well within reach given the ample supply of overlooked companies.
An Underserved Market: The $1M to $5M ARR Segment
Curious specifically targets startups generating $1 million to $5 million in annual recurring revenue (ARR). This segment, according to Dumont, has historically been overlooked by traditional private equity firms and secondary investors. “We’ve been doing this for a little under two years now, and we’ve probably looked at at least 500 companies, and we bought five,” Dumont shares, underscoring the selective nature of their acquisitions.
While Bending Spoons’ substantial valuation increase certainly validates the “venture zombie” acquisition model, Dumont acknowledges that the path to profitability isn’t for the faint of heart. “It’s a ton of work,” he admits, suggesting that the barrier to entry, while potentially lucrative, requires significant operational expertise and dedication. The ability to identify promising but dormant assets, implement effective operational changes, and manage a portfolio of diverse businesses demands a unique skill set, making this a niche with considerable potential for those equipped to navigate its complexities.
This emerging trend signifies a potential recalibration of value creation in the tech industry. It’s a shift away from the often-unsustainable chase for hyper-growth towards a more grounded approach that prioritizes long-term profitability and sustainable business models. As AI continues to reshape the technological landscape, the demand for these “venture zombie” whisperers is likely to grow, offering a compelling alternative for both investors and the companies they aim to revive.