Bending Spoons and the Rise of the “Hold Forever” Strategy for Tech Acquisitions
A little-known Italian company, Bending Spoons, dramatically entered the spotlight last month with the simultaneous announcement of a $350 million funding round. This influx of capital quadrupled the company’s valuation to $11 billion, a critically important leap from its $2.55 billion valuation earlier in 2024, signaling a new approach to tech investment.
Bending Spoons has rapidly expanded its portfolio by acquiring established but struggling tech brands – including Evernote, Meetup, and Vimeo – and than refocusing them on profitability through stringent cost controls and strategic price adjustments. While this strategy shares similarities with traditional private equity, a key distinction sets Bending Spoons apart: the company has no intention of reselling thes acquired businesses.
This “buy, fix, and hold” model is gaining traction, notably as the landscape shifts with the emergence of artificial intelligence. According to Andrew Dumont, founder and CEO of Curious, a firm specializing in revitalizing underperforming tech companies – frequently enough dubbed “venture zombies” – this long-term approach will become increasingly prevalent.
“Our belief is that the venture power law, in wich 80% of companies ‘fail,’ produces many great businesses, even if they’re not unicorns,” Dumont told TechCrunch. He defines a “great business” as one obtainable at a low cost with the potential for rapid turnaround and considerable cash flow generation.
This strategy isn’t new, with Constellation software having pioneered the model over 30 years ago. However, a growing number of investors are now adopting it, including Bending Spoons, Tiny, SaaS.group, Arising Ventures, and Calm Capital. “Our whole model is to buy these companies, make them profitable, and use those earnings to grow the business,” Dumont explained.
Curious secured $16 million in dedicated capital in 2023 specifically for acquiring stalled software companies unable to attract further investment. Since then, the firm has acquired five businesses, including UserVoice, a 17-year-old startup previously backed by Betaworks and SV Angel.
Dumont noted that UserVoice was a viable business hampered by its ownership structure.”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,” he said. “We provide liquidity and also reset these companies for profitability.” These stagnant companies frequently enough sell for significantly less than thriving SaaS startups, potentially as low as 1x annual revenue compared to the typical 4x or more commanded by healthy businesses.
By implementing cost-cutting measures and price increases, Curious can quickly achieve profit margins of 20% to 30%. “If you have a million-dollar business, you’re kicking off $300,000 in earnings,” Dumont illustrated.This turnaround is facilitated by centralizing functions like sales, marketing, finance, and administration across their portfolio companies, a capability unavailable to standalone entities. “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,” he added.
The difference in approach stems from differing priorities. According to Dumont,traditional venture capitalists prioritize growth over profitability. “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.” The cash flow generated by Curious’ portfolio companies is then reinvested into acquiring additional startups.
Curious plans to acquire 50 to 75 companies like UserVoice over the next five years, focusing on businesses generating between $1 million and $5 million in annual recurring revenue – a segment frequently enough overlooked by private equity firms and secondary investors. Having reviewed approximately 500 companies in under two years, the firm has demonstrated a focused acquisition strategy.
While Bending Spoons’ recent valuation surge validates the “venture zombie” acquisition model, Dumont anticipates limited new competition. He emphasized that revitalizing struggling businesses is a demanding undertaking. “It’s a ton of work,” he concluded.
