Why VCs keep falling in love with dating apps

Finding love online isn’t new.

Dating sites, à la eHarmony, OKCupid and Match.com, have used top-secret algorithms to match singles for almost two decades. However, a unique breed of smartphone apps — think Tinder and Grindr — focused on instant matching have revolutionized the dating market.

Since then a slew of new startups hoping to mimic their meteoric success have managed to not only attract investors from across the globe but spawn a hodgepodge of imitators all looking to hit it big.

In recent years niche apps (everything from @coffeeMbagel to @Bumble and even Sizzle (a free platform for bacon lovers) have diversified the market.

Looking for a lover who must love dogs? There’s an app for it. Seeking out singles who have thick, luscious beards? There’s an app for it. Want a partner who’s a dedicated foodie? Yep, you guessed it. There’s an app for it.

But, in an oversaturated market that’s facing steep competition from new upstarts, can dating apps continue to thrive? For entrepreneurs who can outlast the competition the rewards are huge but so are the risks.

A match made in heaven

It should come as no surprise that both entrepreneurs and VCs are diving head first into online dating. Love is now a multi-billion dollar business. In fact, a report by Fast Company, found the online dating market worth more than $4 billion. China represents approximately $1.6 billion of that total, likely buoyed by its growing economy and a gender imbalance that sees men outnumber women almost two to one.

It also doesn’t hurt that in North America more men and women are signing up for online dating sites. A study by Pew Research Center found the number of people aged 18 to 24 dating online tripled between 2003 and 2016.

When done right, dating apps have also managed to rack up a large number of users and money. Last summer Match.com offered to acquire Bumble for $450 million (valuing the company at $1 billion). Tinder is 50 million-members strong and valued at $3 billion while Coffee Meets Bagel has raised a total of $16.7 million and famously turned down a $30 million takeover offer on Shark Tank.

“The singles market is growing, which means category size is growing. In 2011 there were about 300 million single adults online worldwide,” explains Coffee Meets Bagel co-founder Dawoon Kang about the ever-increasing market. That number will be close to about 700 million by 2019. Growing category size means growing revenue for dating apps that serve singles,”

How to make it work

So, what separates successful dating apps from the rest? How can entrepreneurs create a lasting relationship with consumers? It all boils down to finding an underserved market and creating unique services that provide meaningful experiences.

Happn, a GPS-focused app that’s raised $22 million, found its niche by matching people who have physically crossed paths. Through location tracking, it connects singles who happen to share the same commute, visit the same coffee shop or even pass each other on the street.

We’re a generation used to technology that does everything. Apps that connect people together in a way that’s easy, genuine and touch on with real life work and that’s why Happn works, explain Emma Mrejen, a dating expert at @Happn_app

Some of the biggest and most successful companies in recent years were apps focused on Asia’s growing, yet underserved, market that up until a few years ago had few competitors. Last year Beijing-based Tantan raised $70 million while Singapore’s Paktor brought in $32.5 million in 2016 and gay dating app Blued secured $100 million earlier this year.

In North America, more companies are diversifying beyond romance-based offerings to create new value for their users. For Bumble, that means asking users to swipe right on potential business contacts, new friends, and even prospective mentors. Tinder and Plenty of Fish also offer up friendship as one of its core services.

While it may seem like an odd prospect to look for friends on dating apps it makes sense to customers accustomed to swiping right on everything from food to love.  Of course, the future for digital dating is uncertain, but startups that hope to survive should look to new trends before it’s too late stand if they hope to create a lasting relationship.