How a Spanish startup pivoted to video AI and built a $230 million ARR business with no VC funding

Greetings, Tech Editor Alexei Oreskovic guest-writing your Term Sheet today. Silicon Valley likes to think of itself as the center of the tech universe, and San Francisco’s heavy concentration of AI companies is only reinforcing that habit.

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But innovation, creativity, and entrepreneurial acumen aren’t restricted by borders, as I was reminded when talking to Joaquín Cuenca Abela recently. The 49-year-old Spanish founder is showing how it’s possible to thrive in the AI market even if your company isn’t building a frontier model, even if it’s not backed by VC money—and even if it isn’t based in Silicon Valley.

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

When OpenAI’s DALL-E 2 image generator came out in 2022 though, Cuenca realized everything was about to change and he pivoted hard into generative AI. Freepik began offering tools that combined AI image-generating models with editing tools. Last year, he pivoted even further and pushed the company into AI video generation.

Today, the business is generating $230 million in annual recurring revenue, with video accounting for roughly half of the revenue, Cuenca tells Fortune exclusively. And given that its business has changed so much from its initial days as a stock imaging platform, the company is changing its name from Freepik to Magnific.

“We are creating a new economy,” says Cuenca, who is the CEO. “It’s not that we are getting users from any particular competitor, it’s that people are finding that they can do a new thing that was not possible before.”

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

Making the pivot from an established business to something new like video AI wasn’t easy, Cuenca acknowledges. The company currently has 400 employees, down from roughly 550 when it was focused on stock images. “There’s going to be some pain in any transformation,” Cuenca says, but notes the company is hiring employees with different skills now and that the intention is to ultimately get bigger than Freepik was at its peak. The company opened an office in San Francisco in 2023 that currently has around 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’s never raised money from outside investors, and he says Magnific is profitable.

Would he consider raising money in the future, especially given the not-so-trivial costs of generating tokens for AI? At some point, perhaps, Cuenca says. But, “if we do it, it’s because we want to grow the DNA of the company.”

See you tomorrow,

Alexei Oreskovic

X: @lexnfx

Email: alexei.oreskovic@fortune.com

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