Tech Zombies Risen: Buy, Fix, Hold Business Model Takes Hold

The tech industry is witnessing a rise in the 'buy, fix and hold' strategy, exemplified by companies like Bending Spoons. These firms acquire aging tech brands, often deemed 'venture zombies,' and implement aggressive cost-cutting and price adjustments to achieve profitability. Unlike private equity, the goal is not to resell but to hold these businesses indefinitely, using their earnings to fuel further acquisitions. This model capitalizes on the increasing irrelevance of older venture-backed software due to AI advancements.

Andrew Dumont, CEO of Curious, a firm employing this strategy, highlights that stagnant companies are often available at a fraction of their former valuation. By centralizing operations and focusing on sustainable profitability, these acquired businesses can achieve significant profit margins. Curious has successfully acquired five companies, including UserVoice, revitalizing them after they failed to secure further investment, providing liquidity and a fresh start.

This investment approach targets software companies generating $1 to $5 million in annual recurring revenue, a segment previously overlooked by traditional private equity. While Bending Spoons' recent $270 million raise signals validation for this model, the intensive work required for turnarounds suggests it won't attract widespread, easy competition. The strategy offers a long-term, cash-flow-focused alternative to the high-growth, high-exit paradigm of venture capital.