Is buying out stagnant, long-in-the-tooth private software companies and cutting costs an attractive investment strategy?

Des Traynor · Nov 15, 2023 · hedged

The standard private-equity playbook for an acquired software company is to raise prices, shrink the roadmap and package it into an efficient cash-producing machine

That's what it generally looks like whenever a company is taken private

Scope: explicitly disclaims knowledge of Zendesk's internal situation; generalization about PE-owned companies

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Harry Stebbings · Jun 16, 2025

There is a large opportunity to buy out long-in-the-tooth private software companies one by one where the founders have left, then cut engineering and customer service and raise prices

These companies have absent founders and bloated cost structures, making the playbook repeatable

Scope: framed as a hypothetical private equity vehicle he'd like to start

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Peter Singlehurst · Mar 19, 2025

Bending Spoons' addressable market is the broken part of the venture ecosystem: companies with good products but bad businesses, which can be turned into great businesses inside Bending Spoons

Venture has produced many companies with strong products but unworkable economics, and those products can be made profitable under the right owner

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Peter Singlehurst · Mar 19, 2025

The large cohort of ~$200M revenue, mid-teens growth, unprofitable companies that suit neither growth investors, PE nor the IPO market are the natural market for consolidators like Bending Spoons

They don't stand up as standalone businesses, but the right capital allocator can improve the products, make them profitable and generate a lot of free cash flow

Scope: depends on being in the hands of the right kind of capital allocator

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Larry Aschebrook · Jun 16, 2025

Buying stagnant 2015-vintage private software companies and layering in secondary purchases to lower the cost basis can produce a 5x in three years

Secondary buying lowers the entry cost basis on top of the operational cuts

76:56 Layering secondary purchases onto cost cutting lowers cost basis for a fast multiple