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Continuations : The Return of the Capital Intensive Startup


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Historically startups were capital intensive because they had to spend a lot of money to build the product and bring it to market before they were able to generate revenues.  Now it seems that everyone believes in network effects and the capital intensity comes from trying to build the biggest network faster than the competition.  The use of capital has thus shifted to customer and/or supplier acquisition or maybe more generally towards network growth.

This is likely to be bad news both for startups and for investors (but potentially great news for customers).  A lot of capital will be spent but if network effects do exist in the end only one or maybe two companies will dominate the market and provide any returns.  Now for the part that I am grappling with.  What should one do about this as a startup and as an investor in startups?

Investors are waiting. They're being more cautious.

Startups need to do whatever it takes to survive. It's Darwinian out there.

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