mlent (a blog)

Musings on startups, finance and other things.

Andrew Chen Is Wrong; Matchmaking != Dating

I recently read Andrew Chen’s blog post “Why Investor’s Don’t Fund Dating.” It’s a thoughtful post, and he’s a credible guy, but I felt a rebuttal was in order, from a 100% biased Keeper perspective.

Who is Andrew Chen?
Andrew is a writer of a well known marketing blog, entrepreneur and investor in and advisor for some successful tech startups.

What’s Keeper?
A company I co-founded: we're building an app where friends play matchmaker. The idea is: singles simply have an inbox, while their friends do the matchmaking – by writing their profile and swiping for them. Zero effort for singles, fun for the matchmakers (friends+family).

What did Andrew say?
He cites the following reasons “for why investors don’t do dating”

1. Built-in churn
2. Dating is niche and has a shelf-life
3. Paid acquisition channels are expensive
4. City-by-city expansion sucks
5. Hard to exit
6. Demographic mismatch with investors
I'll refute them one by one.

1. Built-in Churn
In Andrew’s words:
“the better your dating product works, the more your customers will churn”
True. But, for Keeper, happy couples aren't lost revenue - they simple become matchmakers (i.e. free CAC). Keeper is like LinkedIn… you use LinkedIn even when you’re not actively looking for a job. Think of us as a social network for creating relationships. See #3 below for why matchmakers bring free CAC

2. Dating is niche and has a shelf-life
Andrew writes:
A similar challenge is that these products aren’t “social” in the same way that Skype or Facebook might be. Although the stigma is quickly passing, it’s not like consumers want to sign up for a dating site and then invite their friends+family to join them on the site.
The ONLY way Keeper works as a single person is if you invite friends+family to join you. 

We think singles become more open to being set-up in their late 20s. Keeper isn’t a hookup-app, we do long term relationships. And for that, people really care about what their friends and family think. In some countries, like India, that’s simply how it’s done, full-stop, even with the advent of online dating. In others, like Israel, there's a matchmaking culture.

And this isn’t just theory: We’re already seeing singles refer as many as ten matchmakers for themselves. Ten. We currently have an average of 2.2 ‘vouches’ per single right now. And hopefully a few of those matchmakers will want to play cupid for more than the person who invites them.

3. Paid acquisition channels are expensive
Andrew approaches this point from a customer acquisition cost (CAC) versus lifetime value (LTV) perspective (as he should), where return on investment (ROI) is:


Let’s look both numerator and denominator of that fraction.

LTV - We have higher LTV, because we have lower churn.
A happy couple just means two more matchmakers

Because if we do this right, you join Keeper when you’re 25, and when your 85, instead of scrabble, you’re playing digital matchmaker for your grandkids. Besides the fun people watching aspect of swiping, and the possibility of making your kin extremely happy, the biological upside is your ensuring your genes get matched up with another strong set and live on.

CAC - Dating keywords are expensive. Matchmaking keywords are far cheaper. Further lowering the cost, we can actually target people in relationships (not a popular demo for dating apps), and now with Ashley Madison pretty much sunk, those keywords are even cheaper for that group :)

4. City-by-city expansion sucks
My friends and family are located all over: Boston, Washington, D.C., New York, Los Angeles, London. They can all matchmake for me. And I can matchmake for them. This phenomenon simply doesn’t exist in dating apps. Matchmaking, my friends, that’s where it’s at! (Plus, our matchmakers are free, and they already know you).

5. Hard to exit
First of all, with free CAC, happy lifetime users and an incredible brand, why would we ever want to exit? This is fun, it will be a very good business. But if we have to exit, here's why this won't be so bad:

If you haven’t heard, there has been M&A in the space, especially for top players, most recently a $575m buy. With the upcoming spinoff of Match from IAC, we think consolidation will be happening, but we’re still not so sure we want to be a part of it, as being the only decent game in town for matchmaking, we have an incredible advantage.

Think about it: The ‘vouches’ that form profiles in Keeper, those are valuable pieces of data. It’s one thing to write a new profile on a new app — it’s another to get vouched by a bunch of family and friends. That’s sticky data, hard to replicate, valuable. 

Oh, and worst case (and this is my finance side talking) we will simply generate lots of free cash flow, and we can just dividend out these to our happy investors, or use Regulation A+ to go public sooner to generate liquidity.

6. Demographic mismatch with investors
True, but to the savvy investor, this is a feature, not a bug. Here's why:

a) The underlying economics are unchanged. Translation: lower initial valuations for dating companies — with the same ultimate cashflows—this simply means better return on investment for angels and VCs who can sift signal from noise.

b) Investors 'get' matchmaking, or at least meeting through friends. Turns out that it's the most common way of finding a spouse. And with the growing trend towards online (especially mobile) dating, we're at the center where old meets new.

c) Apps that investors have a demographic mismatch get funded... take for example SnapChat — definite demographic mismatch (notable exception).

Well, that's all six of Andrew's points. Hopefully, in reading them, you've gotten a taste of Keeper and how we're positioning our strategy to avoid the pitfalls he points out. Feel free to reach out if you have some comments, would love your feedback.

TL;DR: Andrew, you're wrong. Investors of the world: be greedy when others are fearful. Scalable, mobile-first matchmaking (Keeper) is a billion dollar opportunity.

Why I'm (just now) starting a blog

Yes, it's 2015. I'm a little late to the party. Why, you ask, are you starting now? Some reasons (a.k.a. excuses :)

1. Wasn't important / allowed
I used to be an investment banker and a data analyst / internal tool builder handing sensitive compensation information. Blogging about material-non-public information, or equity trends of Google executives was neither important for my job, nor allowed by any semblance of confidentiality. And there are so many personal blogs out there, and I don't have a cat.

2. I've been too busy
It's hard enough to go to work, stay somewhat healthy, maintain friendships and relationships, and keep tabs on what's going on in the world. Add nurturing a social media and blog audience, something would have had to go.

3. I didn't realize the value

Growth Expert / Goddess Regina Grogan wrote this post - on why publishing is important. It was the catalyst for this blog. Here's an excerpt:

If you're not publishing, start. Publish what you're passionate about (APPS!). If you're publishing, keep publishing until you get noticed. It's not easy. It never will be. Wake up and publish. Write ideas down. Write more ideas down. Start publishing what you're thinking. Don't let fear kill what you really want.
That's why your competitors aren't publishing, that's why content is king online, and that's why people who publish will always stand out.