Reviving ‘Venture Zombies’: The Rise of ‘Hold Forever’ Investment Strategies
In the dynamic world of venture capital, a novel investment approach is gaining traction: the hold forever strategy. This method focuses on acquiring underperforming or stagnant tech companies, often referred to as venture zombies, and revitalizing them into profitable entities without the intention of reselling. This trend is exemplified by companies like Bending Spoons and Curious, which are reshaping the investment landscape.
Bending Spoons: A Case Study in Transformation
Italian tech firm Bending Spoons has recently emerged from obscurity with a series of bold moves. Within a mere 48 hours, the company announced the acquisition of AOL and secured a substantial $270 million in funding, catapulting its valuation from $2.55 billion in early 2024 to an impressive $11 billion. This rapid ascent is attributed to Bending Spoons’ strategic acquisitions of stagnating tech brands such as Evernote, Meetup, and Vimeo. By implementing aggressive cost-cutting measures and adjusting pricing strategies, the company has successfully turned these businesses profitable. Unlike traditional private equity firms that often aim to sell acquired companies for a profit, Bending Spoons adopts a hold forever philosophy, focusing on long-term ownership and sustained growth.
Curious: Breathing New Life into ‘Venture Zombies’
Andrew Dumont, founder and CEO of Curious, is another proponent of the hold forever strategy. His firm specializes in acquiring and revitalizing what he terms venture zombies—companies that have plateaued and can no longer attract follow-on investments. Dumont believes that the venture capital model, where approximately 80% of companies fail, still produces numerous viable businesses that, while not unicorns, hold significant potential. He defines a great business as one that can be acquired at a low cost and swiftly transformed to generate substantial cash flows. This buy, fix, and hold approach is gaining popularity among investors, with companies like Constellation Software, Tiny, SaaS.group, Arising Ventures, and Calm Capital adopting similar models.
The Mechanics of the ‘Hold Forever’ Strategy
Curious raised $16 million in 2023 dedicated to purchasing software companies that have stalled. Since then, the firm has acquired five businesses, including UserVoice, a 17-year-old startup that previously raised $9 million in venture capital. Dumont notes that while UserVoice is a solid business, its capitalization table was misaligned with long-term retention, leading to stagnation. By providing liquidity and restructuring these companies for profitability, Curious offers a new lease on life for such ventures. The firm targets startups generating between $1 million to $5 million in recurring annual revenue—a segment often overlooked by private equity and secondary investors. By centralizing functions like sales, marketing, and finance across its portfolio, Curious achieves immediate profit margins of 20% to 30%. The earnings generated are then reinvested to acquire additional startups, creating a sustainable growth cycle.
The Broader Implications and Challenges
The hold forever strategy addresses a critical gap in the venture capital ecosystem. Traditional venture capitalists often focus on rapid growth and high valuations, sometimes at the expense of long-term sustainability. This approach can lead to the creation of zombie companies—businesses kept afloat to maintain portfolio valuations despite lacking real growth prospects. By contrast, the hold forever model emphasizes profitability and long-term viability, offering an alternative path for companies that might otherwise be left to languish. However, this strategy is not without its challenges. Turning around stagnating companies requires significant effort, strategic vision, and operational expertise. Dumont acknowledges the complexity of this work, noting that while the model is effective, it demands substantial dedication and resources.
Conclusion
The emergence of the hold forever investment strategy marks a significant shift in the venture capital landscape. By focusing on the acquisition and revitalization of venture zombies, firms like Bending Spoons and Curious are demonstrating that profitability and long-term growth can be achieved without the need for rapid exits. This approach not only provides a lifeline to stagnating companies but also offers investors a sustainable and potentially lucrative alternative to traditional venture capital models. As the investment community continues to evolve, the hold forever strategy may well become a cornerstone of modern investment practices.
