Fintech

Data privacy and harassment could spoil Grindr’s Wall Street romance

As it pursues a long-held goal of going public, the gay dating app has to confront its demons.

Data privacy and harassment could spoil Grindr’s Wall Street romance

Grindr may finally be a public company.

Illustration: woocat/iStock/Getty Images Plus; Protocol

Grindr's looking for more than just a hookup with Wall Street. Finding a stable relationship may be tough.

The location-based dating app favored by gay men was a pioneer, predating Tinder by three years. It’s bounced from owner to owner after founder Joel Simkhai sold it in 2018 for $245 million. A SPAC merger could be the answer, but businesses serving the LGBTQ+ community have had trouble courting investors. And Grindr has its own unique set of challenges.

Introduced in 2009, Grindr pioneered the use of then-new iPhone location features to show nearby users ready to chat or, well, go further. Its distinctive notification sound became a way LGBTQ+ people could stealthily reveal themselves to each other — or prank their friends. Grindr got blamed for killing gay bars — a charge Simkhai disputed — and coarsening LGBTQ+ dating culture. Despite those critiques and the emergence of challengers, Grindr still has a commanding position in gay dating apps.

On May 9, Grindr announced it planned to go public through a SPAC deal that would value the company at $2.1 billion, almost 10 times what it sold for four years ago. If shareholders approve the merger, Grindr will finally be a public company — something it’s been seeking since 2018.

Grindr makes money off of most of its users with ads, with a small number of subscribers paying for premium features; those payments made up the bulk of its revenue in 2021. About 94% of Grindr’s 11 million monthly active users worldwide use it for free, according to an investor presentation.

Social apps all deal with moderating content and keeping bad actors off their networks. Grindr, though, has some unique challenges because of the nature of its app and many users’ preference for discretion. Names, public photos, pronouns and sexual orientation are all optional.

Grindr hasn’t always kept users’ data as private as they’d expect. Those breaches as well as discrimination and harassment issues have brought the company negative media reports, lawsuits and regulatory actions abroad.

The company is promising investors that there’s $14 trillion to be made serving the LGBTQ+ community — a pitch that companies like PlanetOut have made in the past. The pullback in tech stocks and SPAC deals in particular, combined with its reputational challenges, could make Grindr a difficult partner for some investors.

"Grindr welcomes the transparency and accountability of reporting to the market on our strong financials, leading-edge privacy and content moderation practices, and the overall health of our socially conscious business," Patrick Lenihan, Grindr's vice president of communications, wrote in a statement provided to Protocol after this article's initial publication.

SPAC to the future

Grindr’s had past relationship trouble. After Simkhai sold his creation to Beijing Kunlun, a Chinese gaming company, in 2018, users and lawmakers alike had questions. The straight president of Grindr drew a firestorm of criticism after he characterized marriage as a “holy matrimony” between a man and a woman. And CFIUS, the U.S. government body that reviews foreign acquisitions of American companies for national security risks, decided it was a national security risk: You only had to spin up Grindr near a U.S. military base and hear that notification sound pop off to understand why.

With the Beijing Kunlun-Grindr pairing clearly doomed, a consortium of investors purchased the app from the Chinese company in May 2020. Just a few months later, Raymond Zage, an investor in that group, helped start a SPAC called Tiga Acquisition Corp.

Under SEC rules, a SPAC isn’t supposed to have a target in mind, but with a deadline to strike a deal looming, it landed on Grindr. Zage’s conflict of interest is extensively detailed in the deal’s S-4 filing, which advises investors of the risks involved.

The concern is that Zage might want to “make a sweet deal with Grindr's shareholders,” said Stanford Law School professor Michael Klausner. Tiga hired an independent financial firm, Duff & Phelps, and offered a financial analysis, but Klausner said that’s hardly adequate. “A banker's fairness opinion in a SPAC is not worth the paper it is written on,” he said.

Tiga paid Duff & Phelps $600,000 for the fairness opinion, according to a filing, with some of that payable after the deal is completed. Duff & Phelps and parent company Kroll did not respond to a request for comment.

Grindr had revenue of $104.5 million in 2020, growing almost 40% to $145.8 million in 2021, making it far smaller than Bumble, a publicly traded dating app that Duff & Phelps used in its comparisons. Grindr lost $13.1 million in 2020 and made $5.1 million last year.

Another consideration: The SPAC market has cratered this year amid a general pullback in stocks, according to data from SPACInsider.

The privacy problem

Even if Grindr pulls off its SPAC deal in a hostile market, it will have to deal with thorny privacy challenges. The proxy statement for the SPAC deal lists conflicts of interest, backlash over data privacy and harassment and abuse as major risks.

Three forces are pulling the company in different directions: Users want it to protect their information and give up as little as possible. Moderating content and fighting harassment inevitably require surveillance. And advertisers want at least some glimmering of who’s seeing their messages.

Grindr has been criticized for weak privacy protections. Late last year, the company was fined for sharing private data with advertisers, for example, and a Wall Street Journal investigation this month showed that individual users' location data was being tracked and sold from at least 2017 to 2020. The company has also been criticized for operating in countries where being gay is illegal, and the mere use the app could be a serious, even deadly, risk.

The company says users can opt out of sharing data with ad partners and delete their accounts and related information, except in “some scenarios,” which Grindr defines as mostly related to tax and accounting purposes. When an individual initiates an account deletion, global head of Customer Experience Alice Hunsberger said that Grindr usually deletes that data on the server side a few days later.

This emphasis on privacy and speedy deletion of data, however, also has a downside: It makes it difficult for Grindr to find and ban bad actors. Protocol spoke to and reviewed screenshots from one person who said they were harassed on the basis of their identity and threatened with violence by someone they met on Grindr — two clear violations of the app’s terms of service.

The individual deleted their own Grindr account but reported the harassment to Grindr by email. Grindr said it could not find the accused harasser’s account.

Hunsberger said reporting abuse outside the app makes it more difficult for moderators to find the offending account, in part because of the company’s policy of deleting server-side data. It also has comparatively sparse resources devoted to moderating its 11 million monthly active users: According to the company, it has 75 moderators contracted through the company PartnerHero. Grindr recently partnered with Spectrum Labs, an AI company, to help scale its content moderation.

“That number is woefully insufficient to deal with a platform that has hundreds of thousands of posts on a given day,” said Northeastern University professor Ari Waldman, who specializes in law and computer science and has been vocal about Grindr’s content-moderation policies.

Hunsberger, for her part, sees content moderation as a tricky trade-off for a company primarily serving LGBTQ+ users. “Banning somebody from Grindr for life is essentially cutting them off from their community,” said Hunsberger. Grindr has to weigh that against the need to protect that same community, she said.

The golden rainbow

The flip side of having a demographic that’s hard to serve is that advertisers may be all the more eager to reach them. Traditional LGBTQ+ media outlets are in decline: Out and Advocate only publish in print six times a year, and Paramount’s Logo is airing reruns of “The Nanny” and “The Facts of Life” on cable. Grindr users, by contrast, spend an average of 61 minutes a day on the app, and open it multiple times a day.

The pitch for Grindr includes the kind of stats that make marketers’ mouths water: LGBTQ+ people in the United States spend 30% more on recreational activities, 36% are luxury travelers and have a 18% higher median household income.

“We’re still just beginning our monetization and growth journey,” Grindr CEO Jeff Bonforte said in a press release.

That journey’s going to happen without Bonforte, a veteran of online media who made his name at Yahoo, but who’s not part of Grindr’s target demographic. Grindr is looking for an LGBTQ+ executive to replace him; there is no guarantee it’ll find one, the company says. Ironic, perhaps, for an app that made its name by helping its users locate their tribe.

Correction: On May 22, 2022, this story was updated to clarify that subscriptions account for most of Grindr's revenue, correct the title of a former Grindr executive, and remove an imprecise assertion about the SPAC market. It has also been updated to include a statement from a Grindr official.

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