Looking back, we feel that we made the best decisions with (and hopefully provided the most help to) businesses displaying strong network effects. This brings us to our refocused thesis: we like to invest in businesses with potentially large network effects built around people and/or data.
We think that network effects can provide a long-lasting competitive advantage and can be very capital-efficient. Connecting people and data over the web and mobile also creates something that wasn’t possible before – the end result is new and unique, not just something faster, cheaper, or better. Network effects can be found in many categories, from marketplaces, to (social) platforms or SaaS, and in many products built specifically around (big) data.
(1) This explains why Seeking Alpha, where insight is generated by a community of contributors and commenters, is so much more powerful than finance sites where content is generated by paid journalists. Community has network effects.
(2) Cf. Why the best products don’t always win, AKA how to build a moat around your business and Reverse network effects, and how to combat them.
(3) See also: How to stress test your strategy.