Why VCs Are Wary Of Swiping Right On Dating Startups

Finances
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The dating industry remains a firm favorite for entrepreneurs who dream of founding the next breakout startup. But for many big-time investors, new dating platforms are risky ventures in a crowded market that may not be worth betting on. In honor of Valentine’s Day, Crunchbase News took a look at the relationship between startups, investors and the pursuit of finding a mate. Their status? It’s complicated.

Online dating has proved it can be an enormously profitable industry, yet despite producing impressive numbers, it often struggles to lure venture funding. “In 2018,” writes Joanna Glasner, “venture investors put $127 million globally into 27 startups categorized by Crunchbase as dating-focused. While that’s not chump change, it’s certainly tiny compared to the more than $300 billion in global venture investment across all sectors last year.”

Global venture investment in dating startups currently leans heavily toward companies based in China. Blued, a China-based dating app for gay men, received nearly 80 percent of dating-related capital in 2018. In 2017, Chinese mobile dating app Tantan received the bulk of dating investment. In 2014, Beijing-based matchmaking site Baihe raised a staggering $250 million.

In the US, which is home to the majority of funded startups in the Crunchbase dating category, dating startups are struggling to match that level of success. While some funding is raised during smaller rounds, major financings are rare. The most notable US-based startups to receive funding in the last three years are Bumble (which received an undisclosed amount from investors including Badoo), The League (which received $2.3 million from investors including Sherpa Capital), and Coffee Meets Bagel (which received $31 million from investors including DCM).

Some well-funded names in the dating space have justified investors’ faith and produced solid returns. Shares of Match Group, parent company of Tinder, have more than tripled since Valentine’s Day 2017. Its current market cap sits at around $16 billion. There’s no doubt that a rewarding relationship is possible between a dating company and investors.

Some startups without known venture funding have brought in even bigger outcomes. Glasner points to Grindr, which sold 60 percent of its company to Chinese tech firm Kunlun Group in 2016 for $92 million and the remaining stake last year for $150 million, as an example. There’s also OkCupid, which sold to Match.com in 2011 for $50 million.

Despite this, investors are hesitant to swipe right on up-and-coming dating startups. The market is saturated (some would say oversaturated) and dating platforms are constantly under threat from new upstarts. Those who can outlast the competition stand to reap immense rewards, but uncertainty is part of the industry, and for investors seeking surer bets, dating startups may appear too risky to take a chance on.