Snap Interactive, creator of the popular Facebook dating app AreYouInterested, is not like most New York startups. For one thing, the firm has never raised a dime from venture capital firms or angel investors. Secondly, it’s a public company, traded as a penny stock on the OTC BB. And last but certainly not least, the company has seen astonishing growth in its revenues, achieving that rare distinction among tech firms: profitability.
Up until recently, Snap was a conservative business, relying on its quarterly profits to slowly expand its staff. But when news broke that Goldman Sachs had invested in Facebook at a $50 million valuation, shares of Snap Interactive rose more than 1,000 percent. That allowed Snap to raise $8.5 million through a private placement of stock, providing the funds for an ambitious plan to expand its small team into a global dating empire.
The brainchild of brothers Darrell and Cliff Lerner, Snap was founded in 2005 as a standalone dating site. But in 2007, when Facebook opened its platform for independent developers to create apps, the brothers changed course. They raised $550,000 from friends and family and switched their focus to their Facebook dating app, AreYouInterested.
“It was the Wild West days, just wide open, but still no one gave us much of chance,” says Darrell. Snap was competing with established players like Match.com and social dating startups like Zoosk, which raised $40 million venture capital funding. “It was very important to us that we maintain our independence and control,” says Darrell. “Even if it meant we had to watch every dime we spent.”
AreYouInterested now boasts 14 million active monthly users, more than twice as many as Zoosk, while Match.com has fewer than 5,000 monthly users on its Facebook app. Snap says it is adding more than 50,000 new users a day and has seen its revenue grow 230% since 2009, when it switched from advertising to subscription, reporting $2.7-2.8 million in revenue during the last quarter of 2010.
The company was able to grow so quickly at first because there were few controls on viral marketing –a.k.a. spam invites– in the early days of Facebook apps. That has put it in a unique position. “No new player in the space is going to be able to replicate that with all the restrictions Facebook has in place now,” says David Evans, who runs the industry watchdog website, Online Dating Insider. Interestingly, Snap has continued to add users, while major social games like Farmville have seen their numbers decline since spam bans went into effect.
Like Facebook itself, international markets are the next big target for Snap. “We have seen great growth in Europe but with just nine programmers couldn’t afford to target our efforts,” says Cliff. “Now we’re going to be creating unique version of the service in local languages and integrating with the local payment platforms that are popular in each country.”
“We’ve always had to operate very lean, so this recent funding was a real game changer for us,” says Darrell. “We’re no Zynga yet, but expect us to use this capital to expand AreYouInterested in a big way and begin to work on some new offerings as well.”
bpopper at observer dot com – @benpopper