Christoph Janz, a venture capitalist and initial investor in Zendesk wrote a great essay on this topic, called Five ways to build a $100M business that talks about market size as an issue for this.
So, here's how you can make Lizbeth or Klein your waifu...Here’s a couple scenarios for products that buy their customers: Here’s a visualization of this: When you start to fill in this chart, you can see a couple things: First, you’ll observe that of course the “ideal” case might look like a super low churn business that also generates a ton of revenue from each customer.However, the market size might be much smaller than the others.You can imagine why successful public Saa S companies try to keep their monthly churn under 2%.So what do the churn rates look like for a dating product? Let’s calculate that: 20% monthly churn = 1-(1-0.2)^12 = 93% annual churn You read that right.In order to make the ROI work, you have to calculate your customer acquisition cost (CAC) versus your lifetime value (LTV) and make sure you are making enough money to support both the marketing as well as operations.
In Saa S, you’d try to get a 3X ratio for CAC: LTV but that’s building in some profit for the company – a dating startup might be able to run it closer to the metal to get their initial growth.
Here are the reasons usually given for why investors don’t do dating: Let’s break it down.
Built-in churn Churn sucks, and the better your dating product works, the more your customers will churn*.
Here’s a simple fact: It’s super hard to get a dating product funded by mainstream Silicon Valley investors, even though it’s a favorite startup category from 20-something entrepreneurs.
There’s a large swath of angels/funds who categorically refuse to invest in the dating category in the same way that many refuse to invest in games, hardware, gambling, etc.
Another way to say this is the dating has “intent” the same way that shopping might, especially when you are talking about a paid subscription service.