Flip Group is raising capital via a SAFE with an $18 million valuation cap and a 25% discount rate. Based on its 2020 revenue of $7,714, this funding round has a revenue-to-valuation multiple of 2,333x. Although software-based companies usually have high multiples, this revenue-to-valuation ratio is exorbitantly high. Other dating apps such as Bumble and Match.com have revenue multiples of 6.8x and 8.2x, respectively. Flip Group’s valuation is overpriced for its industry and in comparison to other early stage startups open to investment. This round’s valuation is not favorable for investors.

The global market for dating apps is relatively large and growing rapidly. The market was measured at about $3.1 billion in 2020 and is growing at a superb annual rate of 22.2%. Some market drivers for this growth include a rise in the usage of the internet, an increase in the constant desire for human connection, and the recent pandemic.

Flip Group has had strong user growth since it began in September 2016. It amassed 326,000 users globally to date and is responsible for more than 296,000 user connections thus far. It has clear product-market fit in a rapidly growing industry. Flip Group has ample potential to secure a strong market niche for itself in the future.

Flip Group was founded by CEO Oliver Heartmont. Right out of high school, Heartmont founded and grew an Instagram account called BeautifulDestinations. That account grew into a marketing company for travelers and tourism agencies which now has roughly 70 employees. He exited this company in April 2016 to begin his new venture of Flip Group four months later. Heartmont’s limited past experience is not encouraging for investors, as it is hard to say if he’s qualified to lead a more tech-focused company. However, his experience at BeautifulDestinations will likely give him strong insight into social media trends and marketing. 

Flip Group CFO Sean Roddy graduated with an accounting degree from the University of Maryland and an MBA in finance from George Washington University. He was also a former adjunct professor at Johns Hopkins. Roddy is highly qualified, having served in various CFO and COO positions for over more than 20 years.

CTO Long Nguyen graduated with a physics degree from Harvard University and obtained his PhD in physics from the University of Chicago. He has had an array of roles in the CTO position building backend technology operations for startups over the years.

While Flip Group’s team consists of members with a nice range of skill sets, the team lacks industry experience and currently totals at five employees. Such a lean team may struggle to grow the Flip app further in terms of users and features. It seems likely that Flip Group will need to expand its team in the near future.

Flip Group’s core differentiating factor is constant verification requests when users upload or update a new profile picture. This feature is meant to significantly decrease bots and scammers accessing the app. A major problem in the usage of online dating apps is the verifiability of users, and Flip Group aims to eliminate this issue. 

Although this is a necessary feature, it is easily replicable. Flip Group doesn’t mention having patents for its verification system. Furthermore, the rest of the Flip Group app appears to function essentially the same as other online dating apps. Therefore, Flip Group’s product has low defensibility. While preventing bots and scammers from contacting users is a good starting differentiator, it isn’t enough. Flip Group will need to figure out new ways to set itself apart from brand names like Tinder and Bumble in order to provide a return for investors.

Flip Group has been in operation for roughly five years and has raised $225,000 to date. Since its inception in 2016, Flip Group has amassed more than 326,000 users with 296,000 connections made thus far. Much of this growth has been recent –  the app saw a 337% increase in users between 2020 and 2021. The Flip app is available globally, and in August 2020, it was the second-highest overall rated app in Hong Kong. The company estimates that by February 2022, the user base will grow to more than 500,000 with 4,000 new users onboarding daily. It also has more than 30,000 positive reviews with an average five star rating in the app store, which indicates high customer satisfaction.

Although Flip Group’s user acquisition rate is increasing greatly, its financial performance isn’t as impressive. The company’s audited revenue for 2020 was just $7,714. During 2019, its revenue was $1,931. Although this is a 300% year-over-year growth rate, Flip Group is still largely in debt with a long road ahead towards profitability. In order to really establish and maintain a significant portion of the market, the company needs to strategize ways in which it can build various streams of revenue and become profitable. Without a solid monetization strategy, Flip Group investors may not see significant returns.

An investment in Flip Group comes with a moderate risk rating. The major areas of concern are relatively low revenues, the oversaturation of competitors in this space, and low defensibility. There are many existent and dominant competitors in the global online dating market. Although the company’s current differentiator of unique verification is significant, the feature is easily replicable and not patented. As a result, Flip Group currently has low defensibility against competitors. It needs to establish and sustain a moat around the app to maintain its competitive advantage. 

Flip Group also has a solo founder who does not bring much past professional experience to the table. Solo founders often have limited networks they can use for hiring and capital generation. Furthermore, if they decide to leave a company it is usually the end of that startup. These factors create risks within Flip Group from a team standpoint. 

Lastly, Flip Group has not proven that it can monetize its product. While its user growth has been strong, the company’s financials do not reflect that same growth. If Flip Group does not figure out how to sustainably generate revenue, it may never be able to provide a return for its early investors.

Flip Group has a long journey ahead to becoming profitable. Because of the lack of patents and its easily replicable features, the company needs to expand on its verification feature concept and figure out other ways to stand out as a dating app. The industry is already highly competitive, so maintaining its advantage could make the difference between success and failure. 

Flip Group also has a very lean team, which slows down the expansion rate to acquire new users. Hiring people with dating app experience in marketing is essential to capturing the demands of consumers and dominating this industry. Newly onboarded employees could also assist with ideas to generate new streams of income and eventually make the company profitable. Flip Group operates on a global scale, so scaling the company at a steady pace is very important to effectively grow and stabilize its expansion. 

Flip Group has had phenomenal user growth over its lifetime. With a 337% year-over-year growth in new user acquisition between 2020 and 2021, the company looks primed for continual growth over the coming months. Users also seem to like the app, with more than 30,000 positive reviews and an average five-star rating. The company is expanding fast, with downloads from 200 unique markets worldwide. Its revenue also increased 300% from 2019 to 2020, which indicates favorable adoption of its product in the market. Furthermore, the company’s founder and CEO grew a significant user base of more than 20 million users in his past venture prior to launching Flip Group, reflecting his strong understanding of scaling capabilities. Since there is great potential in the rapidly growing dating app market, Flip Group should have plenty of space to make a name for itself.

Flip Group is a global online dating app that emphasizes the security of its users by implementing a unique verification process. It aims to weed out bots and scammers to legitimize the online dating world. Flip Group’s team, although credible, is relatively small. It doesn’t seem reasonable for five people to handle the operations and marketing for an app that’s available globally. The company will need to scale its team in the coming months in order to continue growing its footprint. Additionally, Flip Group’s main differentiator – verifying that users are actual humans – does not look highly defensible. Against legacy brands like Bumble and Tinder, Flip Group could struggle to secure a significant niche for itself. Considering the company’s low revenue to date, its valuation in this funding round is also unfavorably high for investors.

However, Flip Group’s team does have experience scaling companies, which should aid its future growth. Although Flip Group’s verification feature is unpatented and easily replicable, it currently helps the company stand out among less secure competitors. That strategy seems to be working for now, as the company has seen extremely strong user growth over the past years. If Flip Group can determine an effective monetization strategy, it will already have a strong user base in place and could find ample success as a result. Considering all these factors, Flip Group has been rated a Neutral Deal. 

For questions regarding the KingsCrowd analyst report or ratings for this company, please reach out to support@kingscrowd.com.

Analysis written by Feven Solomon, January 6, 2022.