Hustler Words – A new breed of investor, embracing a "hold forever" strategy, is aggressively acquiring so-called "venture zombies" – once-promising, VC-backed startups that have lost their momentum. This trend is gaining traction as firms like Bending Spoons, fresh off a massive valuation surge following its acquisition of AOL and a $270 million funding round, demonstrate the potential in revitalizing these overlooked assets.
Bending Spoons’ model, focused on acquiring and transforming stagnant tech brands like Evernote, Meetup, and Vimeo through cost optimization and strategic price adjustments, highlights a shift in investment philosophy. Unlike traditional private equity, which aims for a quick turnaround and sale, these "forever funds" are building portfolios of cash-generating businesses for the long haul.
Andrew Dumont, CEO of Curious, a firm specializing in acquiring and revitalizing these "venture zombies," believes this approach will become increasingly prevalent. He argues that the venture capital model, with its high failure rate, leaves behind many viable businesses ripe for acquisition and transformation, especially as AI-native startups disrupt the landscape.
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"Our belief is that the venture power law…produces many great businesses, even if they’re not unicorns," Dumont explained to hustlerwords.com. He defines a "great business" as one that can be acquired cheaply and quickly turned into a cash-generating machine. This "buy, fix, and hold" strategy is being adopted by a growing number of investors, including Constellation Software, Bending Spoons, Tiny, SaaS.group, Arising Ventures, and Calm Capital.
Curious, which raised $16 million in 2023 specifically for acquiring stalled software companies, has already acquired five businesses, including UserVoice, a 17-year-old startup previously backed by Betaworks and SV Angel. Dumont highlights that these companies, often burdened by misaligned capital structures, offer significant opportunities for profitability.
While Dumont did not disclose the purchase price for UserVoice, he noted that "venture zombies" typically sell for a fraction of the valuation of thriving SaaS startups, sometimes as low as 1x annual revenue. By centralizing operations like sales, marketing, and finance across their portfolio companies, Curious can quickly achieve profit margins of 20% to 30%.
Dumont argues that traditional VCs prioritize growth over profitability, hindering the potential for sustainable, cash-generating businesses. The cash flow generated by Curious’ portfolio companies is then reinvested in acquiring more startups. The firm plans to acquire 50 to 75 companies like UserVoice over the next five years, focusing on startups generating $1 million to $5 million in annual recurring revenue.
Despite Bending Spoons’ success, Dumont doesn’t anticipate a flood of new competitors, emphasizing the hard work required to turn around stagnant businesses. "It’s a ton of work," he concluded.
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