How a Spanish startup leveraged video AI to reach $230 million ARR without VC funding

(SeaPRwire) –   Hello there—Tech Editor Alexei Oreskovic here, guest-writing today’s Term Sheet. Silicon Valley has long viewed itself as the center of the tech universe, and San Francisco’s dense concentration of AI companies only reinforces that mindset.

But innovation, creativity, and entrepreneurial skill aren’t bound by borders, a fact I was reminded of during a recent chat with Joaquín Cuenca Abela. The 49-year-old Spanish founder is demonstrating that success in the AI market is possible even if your company isn’t building a cutting-edge model, isn’t backed by venture capital, and isn’t based in Silicon Valley.

Back in 2010, a few years after selling his startup to Google, Cuenca co-founded Freepik in Málaga—a sun-drenched city on Spain’s southeastern coast and the birthplace of Pablo Picasso. Freepik carved out a profitable niche as one of the most popular online stock image platforms, helping establish Málaga as an emerging tech hub that has attracted companies like Google, Oracle, and Vodafone.

When OpenAI launched its DALL-E 2 image generator in 2022, however, Cuenca realized everything was about to change and led a major pivot into generative AI. Freepik began offering tools that combined AI image-generating models with editing capabilities. Last year, he took the pivot further, steering the company into AI video generation.

Today, the business generates $230 million in annual recurring revenue, with video accounting for roughly half of that total, Cuenca tells exclusively. Given how much its business has evolved from its initial days as a stock image platform, the company is rebranding from Freepik to Magnific.

“We are creating a new economy,” says Cuenca, who serves as CEO. “It’s not that we’re taking users from any specific competitor; it’s that people are discovering they can do something new that wasn’t possible before.”

Magnific isn’t trying to compete with the big model makers. It lets users choose from various video AI models—including Google’s Veo 3.1 and ByteDance’s Seeddance 2.0—and combines them with its own tools. For example, Magnific’s pre-production tools allow users to create assets like character images, props, and scenery to produce a polished AI video consistent with their storyline. The product has been used in ad campaigns for Puma and Carl’s Jr, in the Amazon Prime Video series House of David, and by the BBC, among others.

Cuenca acknowledges that pivoting from an established business to something new like video AI wasn’t easy. The company currently has 400 employees, down from around 550 when it focused on stock images. “Any transformation comes with some pain,” Cuenca says, but notes the company is now hiring employees with different skills and intends to eventually grow larger than Freepik was at its peak. The company opened a San Francisco office in 2023 (now with about 20 employees) and also has an office in Colombia.

Throughout the journey from Freepik to Magnific, Cuenca says the company has been bootstrapped the entire time. He has never raised money from outside investors, and Magnific is profitable.

Would he consider raising funds in the future, especially given the non-trivial costs of AI token generation? Maybe at some point, Cuenca says. But, “if we do it, it’s because we want to grow the DNA of the company.”

Catch you tomorrow,

Alexei Oreskovic
X: @lexnfx
Email: alexei.oreskovic@.com

Submit a deal for the Term Sheet newsletter here.

Joey Abrams curated the deals section of today’s newsletter. Subscribe here.