I know, the venture capital landscape is changing every minute. Companies such as Bending Spoons and Curious are adopting an unusual “buy, fix and hold” approach to take advantage of what they refer to as “venture zombies.” These are growth-starved startups that have become too big to bootstrap showing no growth to make further investment betting on a sound due to this stunted growth. Both companies are focused on taking these operations over and turning them around. Unlike ordinary private equity fly-in, fly-out strategies, they do not plan to sell.
Bending Spoons, Italy’s largest and fastest growing software company, acquired AOL just a couple of weeks ago. This maneuver sent its valuation surging from $2.55 billion earlier this year to a staggering $11 billion following its $270 million round of funding. The company’s strategy is to acquire businesses and take care of them to achieve solid long-term organic growth. This strategy distinguishes it from the often short-sighted venture capital model that generally seeks out fast returns.
Founded by Andrew Dumont, Curious has recently targeted troubled, or under-performing, startups. The firm has raised $16 million in dedicated capital in 2023 to purchase software companies that can no longer attract follow-on investments. Curious plans to make 50 to 75 startup acquisitions over the next five years. They are actively seeking out businesses that produce annual recurring revenues from $1 million to $5 million.
Dumont elaborates on the firm’s lofty objectives. He puts a fine point on the fact that Curious most often turbocharges purchased companies to achieve profit margins from 20% to 30% within months. This fast-paced development turns floundering projects into cash cows. This change has been an important element of their recruiting strategy.
“Our belief is that the venture power law, in which 80% of companies ‘fail,’ produces many great businesses, even if they’re not unicorns,” – Andrew Dumont.
Curious—our SPAC partner—has done five successful acquisitions so far. One of these is UserVoice, a 17-year-old startup that once raised $9 million in venture capital from Betaworks and SV Angel before it went to drift. Dumont is confident that in the startups like UserVoice, these are great opportunities for growth and profit.
Investors don’t give a crap about earnings. All they care about is growth. Without it, there’s no VC-scale exit, therefore no reason to run your business with that kind of margin,” Dumont says. Here’s where Curious plan to close that gap, providing liquidity and re-orienting these companies towards being profitable.
These companies have been dubbed venture zombies, as these are the companies that you can buy for 1x revenue or less. Traditional venture capitalists pass on these companies due to the notion that their growth has plateaued. Curious sees opportunity where others see a lost cause. The firm defines a “great business” as one that can be bought at a low price and quickly revived to generate substantial cash flows.
“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,” – Andrew Dumont.
Because of Curious’s approach, they’re able to put their energy towards building a sustainable business. By not aiming for quick sales or VC-scale exits, they can balance growth with profitability more effectively than many traditional models allow. Dumont emphasizes this point by stating, “If you have a million-dollar business, you’re kicking off $300,000 in earnings.“
Curious’s model stands in contrast to the common venture capital approach where the primary objective is rapid growth and subsequent exit strategies. Curious has always been focused on becoming profitable and long-term sustainability. This laser-like focus has turned them into an accidental leader in the current wave of venture capital investment.
“We provide liquidity and also reset these companies for profitability,” – Andrew Dumont.
Bending Spoons and Curious are already hard at work on their “buy, fix, and hold” plans. In so doing, they would be creating the underpinnings of a new model for venture capital investing to follow. Yet this is the model that is predominantly used to save distressed companies. It shares lessons on how to secure sustainable growth in an industry that is characterized by rapid turnover and speculative investments.
