The Unicorn Industry that Most VCs Are Missing
“You have to be nuts building a dating app,” a good friend — a grizzled veteran of the technology industry — told me shortly after founding Cuddli. “It’s insanely competitive. The market isn’t very big. Zoosk’s IPO is going to fail” (it later did). “What’s your customer acquisition cost going to be? What about your lifetime customer value? With anything new, there’s really no way to make the numbers work.”
My friend was totally right… if you believe that markets can never grow and patterns of human behavior never change. However, there was an elephant in the room. It was a trend that was simply impossible for us to ignore and we saw an incredible opportunity sitting in front of us. The proof was called Tinder. In January 2014, Tinder was just beginning to really catch on, and during the past year we have watched the company ride a rocket sled to a valuation estimated over $1B. It did this despite firing and replacing its CEO, having major turmoil inside the company (they’re also in LA so we have our ear to the ground on the rumor mill — it’s ugly), being sued for gender discrimination (if you’re a company in the business of relationships, this is maybe the worst thing that could justifiably happen), and receiving massive bad publicity for a number of ham-fisted moves. Despite mistakes that would have run almost any other startup into the ground, users just kept downloading and using the app and the numbers just keep on growing. Tinder is now going global, and the app has been translated into 30 different languages.
While completing an MBA in 2013, I was on campus interacting with young university students every day. There, I witnessed first-hand what I had been observing for the previous 2 years of declining sales and market share at Microsoft: there had been a sudden, massive demographic shift in how users interact with both computing devices and online services. Younger users pick up their phone or tablet first. Many don’t even own PCs or laptops. And given the relative safety of App Store curation, users are much more willing to try new software vs. on PCs. There just isn’t much risk of giving your phone a virus by downloading random apps, so the barrier is relatively low to convincing people to install a free app. And with computing being more on-the-go, it also became possible for users to experience software in shorter bursts. It’s impossible to overstate how important this is. Time that was once slack time (walking across campus, waiting for the bus, etc.) can now be screen time. Tinder was in the right place at the right time with the right technology, and they grew the market for dating platforms.
However, Tinder also picked a smaller segment of this growing market than it could have. Most people who are dating are interested in relationships rather than just sex, but Tinder initially seeded their app with young fraternity and sorority students focused on alcohol-fueled one night stands. It became known as the app for naughty college hookups and at this point, they completely own the market for this (at least for straight people — Grindr more or less owns the gay market). Tinder and Grindr aren’t the only apps that have followed the same playbook; in China, Momo and Blued respectively own each market. And, as it turns out, this is a pretty substantial market. It’s one that virtually didn’t exist before. But we think that Tinder is only the tip of the iceberg. There is an incredible potential market in not just connecting people, but connecting them to great places and fun experiences. And this is what we’re doing at Cuddli. Our app is truly groundbreaking and if you haven’t already downloaded it, I really encourage you to give it a try. You’ll begin to get a sense of what is possible.
Oh yeah. One other thing. Tinder received no angel or venture capital investment. Zero. Zip. None. It’s the product of an IAC incubator, IAC being one of the only companies (along with Badoo) that are actively investing in the space. Most VCs hate dating apps. We actually — paradoxically — saw this as a competitive advantage. As I have written before, building a scalable dating app is really hard. It’s a surprisingly deep technical moat. One app launched last year, grew to over 200,000 users and recently shut down — in large part — because the rapid prototyping technology used to build it just couldn’t scale, and rebuilding would be too expensive. If all of this wasn’t enough, when you’re entering a crowded field like dating apps, you can’t just be equally good to what’s already out there. You have to be better — a lot better. So it’s just not an easy industry in which to become established in any serious way. You have to either find exceptionally forward-thinking investors (while these do exist, you’ll spend longer finding them than just using the time to build the business) or bootstrap your way into the industry. We followed Grindr’s example, and chose to bootstrap.
Will Cuddli grow to become the next billion-dollar unicorn without any outside investment? While we would prefer to raise a seed round (and will likely do so from hackers and other friends outside the traditional investor community), it’s certainly possible. And if it isn’t us, it’s likely to be someone else in our industry. Right now, dating is an ugly duckling. But we think you’ll agree that it’s on the cusp of becoming a beautiful swan if you think just a little bigger, and look just a little closer at how the world is changing.
The dating industry is a unicorn. That’s no longer really a question. The only remaining question is who will get rich and who will miss the opportunity.
About the author: I’m the founder of Cuddli and previously worked in a variety of senior global IT roles at Microsoft. I’m interested in technology that keeps people and their data safe without slowing business down. Feel free to reach out if I can help you.