Venture Capital and the Adultfriendfinder “Problem”

Only in adult online services sites can you find massive, profitable, fast-growing companies that are shunned by venture capitalists. Adultfriendfinder is a case in point (and one that came up in a recent conversation with the ever-interesting Markus), with a subscriber base, traffic, and revenue model better than Facebook.

Consider that Adultfriendfinder — tops in revenue among the 40 sites run by Conru under the holding company Various — claims 25 million active users, an undisclosed percentage of whom pay up to $50 a month for its services. The Web-measurement service Alexa ranks the site as the 58th most popular site on the Web.

In comparison, the social networking site Facebook, reportedly for sale for roughly $1 billion, has about 9.5 million registered users who pay nothing. Its Alexa rating: 56.

The trouble is, most VCs are squeamish about this stuff, with it being not uncommon for there to be “no-sin” clause in their investment agreements with limited partners. The result, however, is that profitable, fast-growing legal businesses are off the radar of your typical venture investor, and Adultfriendfinder is just a particularly extreme example.

Of course, it’s worth pointing out that AFF doesn’t need VCs’ money. It’s doing just fine, thanks very much, with more 25-million active users, a percentage of which pay up to $50/month to skulk about looking for, you know, offline adult action. Then again, the founder seemingly would like to somehow exit, and with no investors, few acquirers, and no IPO prospects, he is “stuck” in profitable prosperity.


  1. I think we´ll see a growing “normalization” of adult, driven by new media. It´s an interesting development, and good business to boot.
    Until 10 years ago, adult was the realm of shady businessmen, and pretty much a closed cabal. No one would have touched it, except for the more “glamourous (Playboy, Penthouse etc) end of the scale.
    Then, with the Internet, everyone could set-up an adult site and do good money, without being involved in the acutal provisioning of the content (the fun part, in my opinion, but well…). So, lots of people entered the business that wouldn´t have otherwise been involved.
    Now, with mobile, it´s even more widespread. I work for one of the leading mobile content companies and we sell everything from glossy centerfolds to porn of every kind, alongside content from the biggest brands, sports events etc… in the countries were we can sell hardcore and softcore porn, that content is outselling everything else by a factor of 2 or 3. Even in countries where we can just sell bikini, the content is by far the most requested.
    And Vodafone ex-Head of Content, after leaving the job, finally admitted to what everyone in the industry knows: between 50% and 70% of mobile operators content sales (data ARPU) is made by adult content.
    We are all working with porn, adult and the like, and until a few years ago we wouldn´t have dreamed of it, and we are completely outside of the “traditional” porn industry either. Funny, eh?

  2. I had just one question after reading about Adultfriendfinder: What’s his problem? He’s got millions of happy users, many of whom are paying substantial sums of money, so he must be raking in the cash with relatively little effort. Why does he care whether VCs pay attention to him or not?

  3. I think he was a) pissed that VCs didn’t help him at the outset, and b) more unhappy now that he didn’t have very many exit prospects to sell his business and stop living on (very nice) cash flow.

  4. Adult isn’t the only area. I would also count hardcore gaming where there are companies producing massive profits with relatively little VC money or attention going in. While VCs play in the casual games space — which feels more like interative web pages — the real video game space is pretty bare when it comes to VCs.
    Just a few months ago Harmonix sold to MTV for $175m, no real VC money to speak of. There are also at least a handful of MMORPGs that are online that draw in well over $50m in revenue, and well over 1m users, that never saw/see VC money.
    There are historical reasons for this (hits-based?) — but with technology playing a larger role than ever, those reasons are less relevant.