tinder
Dating giant Match will pay $441 million to several Tinder co-founders and early employees, who claimed that the company cheated them out of billions of dollars worth of stock options, according to regulatory filings.
Tinder's former CEO and dot.LA investor Sean Rad, former CMO Justin Mateen, and others brought the case against Match, charging that it misled two investment banks to suppress a private valuation of Tinder in 2017. The valuation was used at the time to establish the price of their stock options.
At each side of the court battle stood wealthy executives and investors who had already cashed in on the rise of mobile dating, pitting Rad and the others against billionaire media mogul and IAC chairperson Barry Diller and former Match CEO Greg Blatt.
“Under the terms of the settlement agreement, Match Group will pay plaintiffs $441 million, and plaintiffs will dismiss all claims presently on trial and in arbitration related to the 2017 Tinder valuation,” Match said in a filing. It’s a significant sum for Match, which had $523 million in cash and short-term investments on hand as of Sept. 30.
Tinder launched in 2012 out of Hatch Labs, IAC's now defunct incubator. The holding company — which buys and flips media and tech firms like Vimeo and Expedia — was also wrapped up in the case, but Match took on IAC’s liability when the two split into separate, publicly traded companies last year.
That means Match and its shareholders were stuck with footing the bill for the settlement.
The case kicked off at the start of November. Over the course of a month, Match’s stock price declined roughly 17% to $128.32 per share, while IAC’s stock price slipped more than 15% to 129.30 per share.
"The parties are pleased to announce that they have settled the valuation lawsuit presently on trial in New York Supreme Court and the related valuation arbitration,” the groups said in a joint statement. Spokespeople for the former Tinder executives declined to comment on the deal, and Match did not respond to a request for comment.
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In a $2 billion case that's laid bare the clashes behind Tinder's meteoric rise, one person at the center of the dating app's finances is set to take the stand on Tuesday.
James Kim, Tinder's former vice president of finance, is the latest witness handpicked by the service's co-founders. His testimony will follow up weeks of arguments, in which Tinder's early staffers have claimed that Match Group — and its former owner, IAC — cheated them out of billions of dollars-worth of stock options back in 2017.
The livestreamed courtroom battle kicked off with jury selection on November 1 and was initially expected to wrap by Thanksgiving, but instead it's dragged on, due in part to technical issues as well as lengthy testimony from former Tinder CEO and dot.LA investor Sean Rad.
Here's what we have learned so far about the case and where it might be headed next.
The "Golden Parachute" and More Payouts
No matter what verdict is reached, one thing is certain: Tinder created a ton of wealth, and that means someone rich is going to win — be it billionaire media mogul Barry Diller and Match's current executives, certain members of the early Tinder team, or simply one of the groups' top-tier lawyers.
Match has "paid out in excess of a billion dollars in equity compensation to Tinder's founders and employees" since the app was launched out of its former incubator, Hatch Labs, according to a statement IAC made to TechCrunch in 2018.
While spokespeople for Rad did not respond to a request for comment on his net worth, both he and co-founder Justin Mateen are prolific angel investors, tapping the funds they secured via Tinder to snap up stakes in numerous growing tech startups.
Plus, there are the payments made to former Match and Tinder CEO Greg Blatt and former finance VP Kim.
When Blatt resigned from Match and Tinder, he allegedly received a $3 million bonus and retained 1.75 million Match stock options that were poised to expire, according to court documents. Early Tinder staffers characterized the payout as a "golden parachute" that was arranged in exchange for Blatt staying on in a limited capacity as an advisor.
Kim, meanwhile, was paid $2 million through the Tinder executives' litigation fund. Judge Joel Cohen declined to block Kim's testimony despite Match's request to do so over the payout, however the judge said it "approaches the line between legitimate litigation funding and illegitimate payment of witnesses."
A "Recycled" Valuation
Throughout the trial, Rad and other former Tinder executives have alleged that Match withheld key details from two investment banks, and provided inaccurate information, to suppress a private valuation of the dating app in 2017. The valuation was used at the time to set the price of their stock options.
At the time, the banks valued Tinder at $3 billion, but lawyers for Rad and other executives argued Tinder was actually worth far more. They say Match and IAC conspired to deflate the valuation in order to avoid a massive payout, while IAC has summed up the plaintiffs' complaints as merely "sour grapes," given the app's persistent growth.
Yet according to testimony from Rad, Match also valued Tinder at $3 billion in 2015. That's key to the case because the dating app's revenue skyrocketed in the years that followed — so why did Tinder garner the same valuation after a couple years of substantial growth?
Between 2015 and 2016, revenue generated by Tinder surged nearly 260% from $47 million to $169 million. Around that time Blatt called Tinder "a rocketship" in a call with investors. Tinder's revenue topped $403 million in 2017, according to data from Statistica.
IAC argues, however, that Tinder was not worth $3 billion in 2015. The company conceded in a statement to dot.LA that it bought shares based on a higher valuation — at a "premium price" — to keep talent around, but IAC says it did so "because Sean Rad misled employees about Tinder's value and they were understandably upset."
"IAC took accounting charges because the price at which we purchased the Tinder options was well above the market value of Tinder, at the time," the company added.
The Saga Could End By Early December
Following testimony from Kim and industry experts, we'll hear from expert witnesses called by Match and IAC. Closing arguments are anticipated for December 2, and from there deliberation could last anywhere between one and several days, potentially stretching through December 6, a spokesperson for the plaintiffs told dot.LA.
While Match cast the chances of an "unfavorable outcome" as unlikely in a recent disclosure to investors, it also cautioned that, "given the uncertainties inherent in jury trials[,] there is at least a reasonable possibility of an exposure to loss, which could be anywhere between a nominal amount and $2.5 billion."
Match also recently told investors that as of September 30, it had $523 million in cash, including "cash equivalents and short-term investments" on hand, as well as a $750 million credit facility.
Depending on where Match believes the trial is headed, it could seek a settlement before deliberations begin, as Susquehanna Financial Group analyst Thomas Claps suggested might happen before the trial even started.
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A multi-billion-dollar lawsuit waged by several Tinder co-founders and early employees is getting its day in court on Monday, more than three years after the former Tinder executives first launched their legal battle against Match Group and its former owner, IAC.
Tinder's two-time CEO and dot.LA investor Sean Rad, former CMO Justin Mateen, and others argue Match and IAC downplayed the dating app's growth potential and overestimated costs in 2017, with the alleged goal of watering down stock options awarded to Tinder's early team.
Lawyers for the former Tinder executives, who popularized swiping right for hookups and dates, said leadership at Match and IAC handed "bogus doom-and-gloom numbers" to two investment banks for an analysis of Tinder's worth, which pegged Tinder's valuation at $3 billion. The private assessment was used to determine the value of Rad, Mateen and others' options.
Former Match and Tinder CEO Greg Blatt had reportedly estimated the fast-growing service was worth $12 billion just a year earlier. But the suit alleges that by deliberately undervaluing Tinder, IAC and Match would be responsible for a smaller payout when the options were exercised.
The complaint also says Match and IAC covered up sexual assault allegations made against Blatt in order to carry out the plan.
Match, IAC and Blatt have denied the claims, while the plaintiffs seek at least $2 billion in damages.
"The company has nothing to hide," IAC said in May. "We did prepare for exactly what came to pass: Sean Rad making scurrilous accusations, completely unsupported by even the alleged victim, in an attempt to harm the company and improperly benefit himself," the firm said. IAC and Tinder did not respond to a request for further comment on the case.
IAC is a publicly-traded conglomerate that buys and spins out media and tech companies, such as Match, Vimeo, CollegeHumor, Tripadvisor, Angi (formerly Angie's List) and Ask Media Group (formerly Ask Jeeves).
Tinder was launched in 2012 out of IAC's former incubator, Hatch Labs, and is headquartered in West Hollywood. MatchGroup and IAC — which separated in 2020 — are based in New York, where the case will be tried by the state's Supreme Court.
The case could offer a rare peek behind the curtain on Tinder's early days as it proceeds remotely due to the ongoing pandemic.
Jury selection is expected to begin on Monday, and live-streamed opening statements are anticipated to start the following week.
Former Tinder executive Rosette Pambakian, who accused Blatt of assault and Match of retaliation, was originally named as a plaintiff in the case, but she dropped out amid litigation over a forced-arbitration clause. Pambakian hit Match and IAC in a separate lawsuit over the agreement. And earlier this year, a New York state judge cut the assault allegations from the co-founders' case.
Former Tinder executive and Bumble founder Whitney Wolfe Herd also isn't involved in the lawsuit. Herd sued Match and IAC over sexual harassment and sex discrimination in 2014, and she has argued she was wrongly stripped of her co-founder status at Tinder.
Tinder was reportedly valued around $10 billion in 2019 in a Match-commissioned analysis of its worth. And in August 2021, an independent Morgan Stanley analysis valued Tinder around $42 billion. The app is currently the top dating app by downloads in the U.S. as well as internationally, analytics firm App Annie told dot.LA.
Today, IAC and Match are collectively worth nearly $57.5 billion, while IAC chairman and Fox founder Barry Diller is estimated to be worth about $5.6 billion.
Back in 2014, Diller remarked that Tinder found success because IAC didn't get in the way. "And we were lucky enough — smart enough, I wouldn't say so much — that we left it alone to the founders," he recalled.
This story has been updated with new information on Tinder's valuation.
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