A new investment paradigm is emerging in the tech world, as a growing number of firms are snapping up what they term "venture zombies" – struggling or stagnating tech startups – with a unique "buy, fix, and hold" strategy. Unlike traditional venture capital, these investors aim not for quick exits but for long-term profitability, transforming distressed assets into cash-generating businesses.

Italian firm Bending Spoons recently brought this model into the spotlight. After operating largely under the radar, the company made headlines last month with its acquisition of AOL and a substantial $270 million funding round, which quadrupled its valuation to an impressive $11 billion from $2.55 billion in early 2024. Bending Spoons has rapidly expanded by acquiring well-known but stagnating tech brands like Evernote, Meetup, and Vimeo, then revitalizing them through aggressive cost-cutting and strategic price increases. While this approach shares similarities with private equity, a key differentiator is Bending Spoons' explicit intention to never sell these businesses.

The Rise of the "Hold Forever" Strategy

Andrew Dumont, founder and CEO of Curious, a firm dedicated to acquiring and revitalizing these "venture zombies," believes this "hold forever" strategy is poised for significant growth. He suggests that as AI-native startups increasingly disrupt the market, older, VC-backed software businesses will become less relevant, creating a fertile ground for this new investment model.

"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 told TechCrunch.

Dumont defines a "great business" in this context as one that can be acquired at a low price and quickly revived to generate substantial cash flows. This "buy, fix, and hold" playbook, pioneered by companies like the 30-year-old Constellation Software, is now being adopted by newer players including 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's Playbook for Revitalization

In 2023, Curious raised $16 million specifically to acquire stalled software companies that can no longer secure follow-on investment. Since then, the firm has successfully acquired five businesses, including UserVoice, a 17-year-old startup that had previously raised $9 million in VC funding from 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 noted. "We provide liquidity and also reset these companies for profitability."

While Dumont did not disclose the exact acquisition price for UserVoice, he indicated that "venture zombies" often sell for a mere fraction of the valuation commanded by healthy SaaS startups, which typically fetch 4x annual revenue or more. Estimates suggest these distressed companies can be acquired for as low as 1x yearly revenue.

Curious's strategy involves implementing aggressive cost-cutting measures and price adjustments, enabling these businesses to achieve 20% to 30% profit margins almost immediately. This rapid turnaround is facilitated by centralizing functions such as sales, marketing, finance, and administration across all their portfolio companies. "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 stated.

Contrasting with Traditional Venture Capital

Dumont highlights a fundamental difference between his firm's approach and that of traditional venture capitalists. "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," he explained. The cash generated from Curious's profitable acquisitions is then reinvested to acquire more startups, creating a self-sustaining growth loop.

Curious plans to acquire 50 to 75 startups similar to UserVoice over the next five years. Dumont is confident there will be no shortage of targets, as his firm focuses on a segment of the software market – companies generating $1 to $5 million in annual recurring revenue – that has historically been overlooked by private equity shops 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 shared, underscoring the selective nature of their acquisitions.

Despite Bending Spoons' recent valuation surge validating the "venture zombie" acquisition model, Dumont doesn't anticipate a flood of new competition. He cautions that turning profits from stagnation is far from easy, describing it as "a ton of work." This emerging investment strategy, focused on sustainable profitability over rapid growth, offers a compelling alternative for both investors and the often-overlooked segment of mature, yet struggling, tech companies.