Network Effect

Definition

The phenomenon where your product becomes more valuable as more people use it—the holy grail of startup strategy because it creates defensible moats.

Example Usage

LinkedIn's network effect made it sticky: each additional user made the platform more valuable for everyone else.

Origin

Economic term formalized in the context of tech by Bob Metcalfe (Metcalfe's Law) in the 1980s.

Fun Fact

True network effect companies are extremely valuable but take longer to grow; Instagram and Uber both have strong network effects.

Source: Economics and technology terminology

Related Terms

Beginner

GP

General Partner, the VC fund managers who make investment decisions and carry legal liability for the fund's operations. They're the ones whose names are on the door and whose reputations are on the line.

🚀 Startup / VC

Beginner

co-founder

The person you start a company with based on four hours of friendship and mutual delusion, who will become either your closest ally or your most expensive breakup. Dating is easier than finding a compatible co-founder.

🚀 Startup / VC

Advanced

Anti-dilution

Investor insurance that says 'your loss is our gain' in math form. When a down round happens, this clause adjusts the math.

🚀 Startup / VC

Intermediate

Strike Price

The price per share at which employees can exercise their stock options. Set artificially low so they can actually afford to buy their equity on the off chance it's worth something.

🚀 Startup / VC

Advanced

trough of sorrow

The extended period after initial startup excitement fades when growth stalls and reality sets in, but you're too committed to quit. It's the emotional valley between 'we're going to change the world' and 'maybe we should get real jobs.'

🚀 Startup / VC

Intermediate

product-led growth

A go-to-market strategy where the product itself drives customer acquisition, retention, and expansion rather than traditional sales teams. Users fall in love before ever talking to a salesperson.

🚀 Startup / VC

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