Why Investors Don’t Want to Invest In Dating Companies, As Told By Andrew Chen
In his weekly newsletter, Andrew Chen discussed the reasons that many investors “categorically refuse to invest in the dating category”. According to Andrew, five key features of this category determine this trend. “Built-in churn” ensures that good dating apps with successful matches are losing customers. Churn could be as high as 93%, meaning that a company has to rebuild its entire user base every year. “Dating has a shelf-life” and consumers have a specific “intent” that reduces the size of the market opportunity. It is also not a social activity making word of mouth harder to achieve. “Acquisition channels’ are expensive too, combining a consumer subscription-style price with high churn. “City-by-city expansion” is tricky and needs to be replicated individually due to the inherently local nature of the market. With older investors, there is a ”demographic mismatch” in terms of their willingness to understand the advantages of dating models. Eventually, dating investments are usually “hard to exit” due to the difficulty in maintaining a customer base.
IAC owns several success stories such as OkCupid and Tinder. They have a rare combination of specific expertise in this area as well as sufficient funding. Despite revenue from online dating expected to grow to nearly $5bn by 2026, many investors are reluctant to invest in this space. For entrepreneurs, resolving the contradiction inherent in such business models would be necessary to scale sustainably.