Bending Spoons: Revolutionizing Tech Acquisitions
Italian company Bending Spoons recently made headlines with significant announcements: the acquisition of AOL and a staggering $270 million funding round. This rapid series of events resulted in its valuation soaring from $2.55 billion to an impressive $11 billion within just 48 hours.
A Unique Business Model
Bending Spoons has established itself through a distinctive approach to growth—acquiring stagnating tech brands such as Evernote, Meetup, and Vimeo, then implementing aggressive cost-cutting measures and price increases to revitalize these businesses. Unlike other investment firms, Bending Spoons has no intention of selling these acquired companies, opting instead for a strategy that could be likened to private equity.
The Rise of “Hold Forever” Strategies
Andrew Dumont, founder and CEO of Curious, a firm that also acquires and revitalizes what he terms “venture zombies,” believes this “hold forever” strategy will grow increasingly relevant. According to Dumont, as artificial intelligence-driven startups begin to overshadow older venture capital-backed software companies, the need for this business model becomes more urgent.
“Our belief is that the venture power law, where 80% of companies fail, yields many viable businesses—not just unicorns,” Dumont explained to TechCrunch. He defines a “great business” as one that can be acquired at a low price and quickly turned around to generate substantial cash flow. This “buy, fix, and hold” methodology is gaining traction among a range of investors, including Bending Spoons, Tiny, SaaS.group, and Calm Capital.
Financially Reviving Stagnant Businesses
In 2023, Curious raised $16 million specifically aimed at buying software companies that had stalled and were struggling to secure further investments. They have since acquired five businesses, including UserVoice, a long-standing startup that had previously raised $9 million in venture capital.
Dumont pointed out that while UserVoice is a quality business, the financial interests of its investors had shifted. “As venture funds age, some companies simply languish,” he said. “We provide liquidity while resetting these companies for profitability.” Notably, Dumont revealed that stagnant companies often sell for significantly less than healthy SaaS startups, which typically command valuations of four times their annual revenue or more. In contrast, these “venture zombies” might sell for as low as one times their yearly revenue.
Rapid Turnarounds Through Cost Management
By implementing cost-cutting strategies and raising prices, Curious can achieve profit margins of 20% to 30% almost immediately. Dumont elaborates, “If you have a million-dollar business, you’re kicking off $300,000 in earnings.” The firm’s ability to centralize functions like sales, marketing, and finance across its portfolio allows for quicker and more efficient turnarounds.
Unlike standalone companies that aim for rapid growth at all costs, Dumont emphasizes, “We don’t have the pressure of VC-scale exits, so we can balance growth and profitability more sustainably.” When questioned about why traditional venture capitalists do not prioritize profitability, Dumont simply stated, “Investors focus on growth; without it, there’s no VC-scale exit.”
Future Plans and Market Outlook
According to Dumont, the cash flow generated by Curious’ portfolio is reinvested to acquire additional startups. The firm aims to purchase between 50 and 75 startups similar to UserVoice over the next five years. Dumont is confident that there won’t be a shortage of potential acquisition targets, focusing on startups that generate $1 million to $5 million in recurring revenue—an area often overlooked by private equity firms and secondary investors.
“Since we began this journey two years ago, we’ve evaluated at least 500 companies and completed five acquisitions,” Dumont noted. Despite Bending Spoons’ recent valuation increase bolstering the viability of the “venture zombie” acquisition model, Dumont predicts limited new competition. “Turning profits out of stagnation isn’t easy,” he cautioned. “It’s a ton of work.”
For more insights into this evolving investment strategy, you can read the full article Here.
Image Credit: techcrunch.com
