Why you should swipe left when Tinder comes to market

Don’t believe the hype: despite the increased deal flow, dating apps aren’t all they’re cracked up to be

You would be forgiven for thinking that 2015 was the year that investors sat up and realised that there’s a whole world out there of people seeking companionship. Early-stage funding to internet dating companies has climbed in recent years, from $10.3m in 2010 to almost $65m in 2014, according to the investment database CB Insights.

Anyone with an eye on the venture capital scene can’t help but notice a steady stream of cash flowing into what must be one of the most overcrowded spaces in tech start-ups.

In the past 12 months, early-stage investors have flung $30m at the Chinese gay dating app Blued; $12m at Hinge, the app that connects people who have mutual friends; $8m at Happn, which allows users to find people they’ve crossed paths with; $14.5m at its German rival, Spotted; $5m at Tantan, China’s answer to Tinder; and – among others – $7.8m at the daily match suggestion app, Coffee Meets Bagel.

Things are getting even steamier among larger companies. The Match Group, the division of Barry Diller’s IAC/InterActiveCorp that houses its large collection of dating websites, has ramped up its acquisition activities. Last summer, it added HowAboutWe to its portfolio, which already includedMatch.com and OKCupid, before increasing its majority stake in Tinder in April and reeling in Plenty of Fish for $575m in July. Meanwhile, Grindr, the app for men seeking men, has reportedly hired an investment bank to help it lock down a partner.

And now retail investors can get in on the action: both The Match Group, which grew revenues by a yearly 19pc to $254.7m in the second quarter, and Ashley Madison, the $1bn dating website for extra-marital affairs, have announced plans to float.

But as is often the case with the profiles on dating websites, what you see isn’t always what you get.

Despite what the recent growth in deals may imply, many venture capitalists have a blanket ban on dating apps, for reasons that suggest retail investors might want to proceed with caution, too.

First, there are the ethical considerations, which cause some investors to lump dating apps alongside tobacco and gambling companies under the category “do not touch”. When announcing Ashley Madison’s plans to join the stock market, a senior executive admitted that the Toronto-based company would look to float in Europe because “it’s been difficult in North America to find the support to go public”.

Barry Diller (R), head of InterActive Corp arrives with his wife, designer Diane Von Furstenberg on the second day at Allen & Company's 24th Annual Media and Technology Conference in Sun Valley, Idaho,IAC chairman Barry Diller with his wife, designer Diane von Fürstenberg  Photo: EPA

Tinder, which, unlike Ashley Madison, at least tries to present a squeaky-clean image, is believed to have around 50m users worldwide, and a recent survey by Global Web Index concluded that 34pc of these users are married (Tinder claims that the real figure is nearer 1.7pc).

The controversial app was the subject of a damning profile in Vanity Fair recently that accused Tinder and its ilk of bringing about “the dating apocalypse” by acting “like a wayward meteor on the now dinosaur-like rituals of courtship”.

The company has also struggled with leadership. Last week, it lost its CEO, former eBay executive Chris Payne, just five months into the job and after it had spent four months looking for someone to lead the company. He will be replaced by the ex-CEO, Tinder co-founder Sean Rad.

Ethical challenges aside, there’s just not much to suggest that internet dating companies are lucrative investments. While some have managed to monetise, they tend to be the matchmaking sites that require more effort and dedication from users, who are therefore more likely to become paying members. But fickle users, who are likely to use several different apps, are swiftly switching to gamified swiping apps such as Tinder and its many lookalikes – which are proliferating amid busier lifestyles, soaring smartphone use and the growth of mobile internet. These are much harder to monetise.

What’s more, the irony of dating apps is that a successful product means you lose users, and this high churn requires these apps to rebuild their customer base constantly. Hence despite the increased deal flow, the money investors are willing to pump into dating apps remains significantly lower than for other hyped sectors such as e-commerce, cab-hailing or food delivery.

Historically, exits from dating investments have been hard to come by, with an early shareholder’s best hope being that IAC will acquire the company. So what does it say about the sector that the biggest buyer of its products wants to offload its long-crafted collection to public investors?

Extramarital dating site Ashley Madison 'not welcome' in SingaporeWould you invest in Ashley Madison?

Stock market listings have not fared particularly well so far for dating companies. Spark Networks, which owns JDate and Christian Mingle among others, floated under the auspicious ticker LOV in 2006 and its share price has since tumbled by 60pc. In May, a year after filing for its IPO, the behaviour-based matchmaking app Zoosk withdrew its flotation plans, citing unfavourable market conditions.

Badoo, the largest dating website in the world, has been tipped for an IPO for at least five years but has stayed far away from the stock market. This will be the second flotation attempt for Ashley Madison – which has admitted struggling to find investor appetite – having failed to drum up enough demand for its first try in 2010.

And London-listed Cupid, which has lost 67pc since floating in late 2010, is now just a shell of a holding company, selling off the last of its internet dating assets. If the chubby-cheeked cherub himself can’t make it out there, what hope is there for the rest of them?

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