Our investment thesis on any of our portfolio companies (and prospective portfolio companies) is simply based around three key pillars – the growth opportunity ahead, the sustainable competitive advantage of the business now, but more interestingly in 5 years time, and perhaps most important of all three, the people and culture of the business.
The framework we use to assess the structural competitive advantage is based on Hamilton Helmer’s “7 Powers”, of which the most powerful in our view is ‘Network Effects’. In its simplest form a positive network effects occurs when a user of a network experiences increasing utility as the network grows.
While there is a lot of information on network effects across various sources, we find it very powerful to use shared language with all our portfolio management teams. To help facilitate this, we made a video covering how we think about network effects that we are now releasing for general consumption.
– What are network effects and why they are important (2:10)
– The different types of network effects (8:12)
– Assessing the strength of a network (18:00)
– Case studies – Shutterstock, Canva, Square (Cash App) and more (23:21)
As always if you have any feedback, please get in touch – hello@tdmgrowth.com
