Online Dating: Fast growing, yes. But can VCs find love here?

Its most likely for couples today to have met online than in any other way. According to a widely cited academic study on the US dating market, 39% of couples met online in 2017 compared to only 2% in 1995. This is the first time ever that more people have the highest probability to find a partner through a source other than friends. This both explains and is explained by the fact that there were estimated to be over 1,500 dating apps in business as of 2018. And there are many more mushrooming across countries and to cater to specific niches.  

By 2025, the global online dating industry is expected to be at $9.2bn, showing an annual growth of 4.7%. Arguably the most popular name in online dating – Tinder, is a prime example of a success in the fledgling dating apps industry. Launched just 8 years ago, it crossed $1bn in revenue in 2019 and continues to see rising subscriber numbers. While match-making services have been available for the longest time and websites bringing singles together have enjoyed success too, it’s the advent of the smartphone and the rise of apps that made connecting as easy as a right swipe.  

Rapid technological advancements that have altered the face of dating in the 21st century were matched with structural changes in the socio-economic scenario, making it the perfect time for the industry to grow fast. Dating apps became the answer for busy urban professionals and tech-savvy millennials looking for partners. Also, as women become more liberated and financially independent, they have more say than ever before in the trajectories their lives take. Greater legal and social acceptance of varied gender identities and partner preferences has added to the pool of people reaching out on dating apps.   

Not quite the right swipe for VCs 

Despite the growth and promise of dating apps, there is a curious trend underway. Venture Capital (VC) funding has grown shy of funding them. As per the latest numbers available, global venture funding for dating startups is nowhere near its highest right now. At its peak in 2015, funding stood at $274mn after falling sharply the next year, according to Techcrunch.com. It started increasing from there, but even then, in 2018 it was less than half its peak value, coming in at $127mn. This is in contrast with the fact that global VC investments as a whole rose for the sixth consecutive year in 2018 according to a KPMG report.  

Moreover, the report says that technology driven companies had the largest share of VC funding and also saw the highest number of deals. However, online dating has not been part of the increase in the number of deals. There has been no particular change in the number of VC deals over the years. In 2015, 27 deals took place while the number was at 26 in 2018. With a halving of the funding amount from its highest levels while the number of deals stays constant means that on average funding per startup has halved as well overtime.  

Best performers are not VC funded 

The success or the lack of it, thereof of dating apps can be one reason for this. A case in point is Zoosk, which was established in 2007 and enjoyed success during its early years. It raised $60mn in venture funding and even filed for an IPO of $100mn. But that is when things went south for it, as it decided to pull out from going public citing market conditions in 2014. It was unable to raise funding after that and was finally bought out by the German Spark Networks last year for $258mn.  

Zoosk’s inability to compete with newer rivals like Tinder was one of the reasons for its gradual decline. In the US, which has been the hot-bed for venture funding in the industry in the past, Tinder’s parent, the Match group, has a near monopoly. It owns several other dating websites and apps besides Tinder, including Match.com, OkCupid and Hinge and is the only publicly listed company in the dating industry.  

The Match group itself is owned by the New York based internet and media company, IAC. It was IAC that provided the first $50mn funding for Tinder, which has now become a big revenue generator for Match. In other words, one of the biggest players in the online dating industry didn’t receive any VC funding initially. Its only in 2014 did it raise outside funding from Benchmark, which also invested in eBay and Uber.  

That does not mean that the dating industry cannot sustain players outside of the IAC realm. In the US market, Tinder had 7.9 mn users as of September 2019, followed by Bumble with a little over 5 mn users. Despite Match’s attempts to acquire Bumble, the latter has not relented, which also led to a legal battle for the two. Interestingly, Bumble too, is funded and majority owned by Badoo Trading, which owns the European dating app by the same name, Badoo. While the feminist dating app has managed to stay independent of IAC, it does reflect that yet another successful dating app has not relied on VC funding.  

Asian dating apps on the rise 

The VC funding that is happening in dating apps, is now shifting geographies. China is one example of this. The country’s large young population and rapid economic advancement has opened up the dating industry, allowing for the success of apps like Tantan. The biggest Chinese dating app by number of subscribers, it has over 300mn users across 88 countries. It raised $107mn, with the last funding round in 2017 from Genesis capital, SAIF China and Zhongwei Capital, before it was acquired by Momo, an instant messaging app that debuted on the NASDAQ in 2014 for $600 mn, in 2018.  

But even before Tantan, there was Baihe, which allowed for marriage matchmaking and for meeting friends. If Tantan is China’s answer to Tinder, Baihe focused on commitment oriented coupling. Founded in 2005, it was a spinoff from a social networking site, Heiyou.com. It raised $252mn before merging with rival Jiayuan in 2015. The combined entity – Baihe Jiayuan Network Group – itself was acquired by the conglomerate and investment firm, Fosun Group, also for $600 mn.  

Singapore based Paktor is another noteworthy dating startup to have garnered much investor attention. With a user base of 5 mn it is quite popular in Southeast Asia. Since starting up in 2013, it has raised funding of $52 mn. The one interesting difference between other promising dating apps and Pakor is its acquisition spree, while the others have actually been acquired. Paktor has acquired five other startups to date, that potentially reflect its global ambitions. The acquirees include the Spanish Groopify, China based Goodnight and Brazil based Kickoff.   

Niche dating gets investor attention 

Besides increasing geographical dispersion of VC funding for dating apps, there is also some focus on niche apps catering to specific segments. One example is UK based Lumen, which caters to over 50s and had 1.3mn users worldwide as of August 2019. The mature dating app was founded in 2018 and has had one round of fund raising worth £3.5 mn according to Crunchbase. Interestingly, it is funded by Andre Andreev, the founder of the European dating site Badoo, which is also an investor in Bumble. 

Another one is New York based East meets East, which connects English speaking urban professional Asians in the US. Founded in 2013, the app has raised $5.6mn so far and says that it is now a “household name within the Asian community”, which is a fast-growing population group in the country.  There are a host of others, including the MeetMindful app, which is for people looking for enriching connections that will help them experience life to its ‘full potential’. The US based company has raised $ 2.8mn in funding since 2013, when it was established.  

But the biggest niche dating apps are those catering to the LGBTQ communities. With widespread legal acknowledgment of homosexuality and its consequent de-stigmatisation, this is a fast-growing category for dating apps. A prime example of this is the US based Grindr, which was one of the first dating apps in the market, having been founded in 2009. With over 7 mn users across 192 countries, the app was able to raise $93 mn in one funding round in 2016 before being acquired by the Chinese internet company, Kunlun for $152 mn. Its Chinese counterpart Blued, has also met with much success funding wise. It has raised $132 mn so far.  

Competition and safety 

But the very promising industry is not without its challenges. The nature of the service is such that it is not always possible to keep users engaged. So obvious is this, that the tagline of Hinge is ‘designed to be deleted’. Added to this is the fact that the online dating business is a crowded one, with much competition. Subscriber numbers are key to the apps’ business. It is little wonder then that the Match group’s share price fell 10%  a few days ago after its results showed that Tinder’s sequential subscriber growth fell to the lowest in a year.   

There is also the focal point of physical safety, especially for women. The Match group, which does not screen subscribers signing up for its free sites and apps, has been called into question after it came to light that it has failed to keep its female subscribers safe from predators. Both Tinder and Grindr have also been found lacking in ensuring child safety.   

More players on the horizon 

Despite the challenges though, it is clear that online dating looks like it is here to stay. Last year facebook also got into the business. Facebook dating, launched in the US, is targeted at people looking for meaningful relationships through things they have in common. With the social media giant joining the dating app business, the fact that they are a draw for corporate businesses with synergies is once again highlighted. Here too, there are no VCs obviously in sight yet. Moreover, it indicates that there is steam left in the business yet, despite all the apps vying for a bigger market share. To what extent the industry appeals to investors, however, is another question.