network effects

Definition

The magical property where your product becomes more valuable as more people use it—or what every social startup claims to have despite zero evidence. True network effects are rarer than honest user growth numbers.

Example Usage

We have strong network effects because users can invite friends, which is definitely not just basic referral functionality that literally every app has.

Origin

Economics terminology from Metcalfe's Law about telecommunications networks

Fun Fact

Facebook has genuine network effects; your meditation app with a friend leaderboard does not, despite what your Series A deck claims.

Source: Economics and technology platform business models

Related Terms

Intermediate

lever

A mechanical advantage device that pivots on a fulcrum to multiply force, or in startup parlance, anything you can use to do more with less. Every MBA in Silicon Valley thinks they've found a "lever" to pull, usually right before asking for $5M in seed funding. Physics teachers hate how loosely VCs use this term, but hey, at least someone's paying attention to simple machines.

🚀 Startup / VC

Advanced

super pro rata

The right to invest more than your proportional share in a subsequent round, allowing early investors to increase their ownership. Pro rata's aggressive older sibling who always wants more.

🚀 Startup / VC

Intermediate

commitment period

The time window (usually 3-5 years) during which a venture fund actively deploys capital into new investments, after which the GP is supposed to stop writing checks and focus on managing the existing portfolio. Think of it as the VC equivalent of last call at the bar.

🚀 Startup / VC

Intermediate

power law

The mathematical reality that in venture capital, one or two investments generate nearly all the returns while the rest are mediocre or dead. Why VCs can lose money on 90% of their portfolio and still return 3x the fund.

🚀 Startup / VC

Beginner

distribution

The return of capital to limited partners when a fund exits an investment, either as cash or occasionally as stock, representing the magical moment when paper gains become real money. The VC equivalent of actually getting your lottery winnings instead of just holding a ticket.

🚀 Startup / VC

Intermediate

down-round

A funding round at a lower valuation than the previous round, signaling either terrible execution or terrible timing. Triggers anti-dilution provisions and existential crises among founders.

🚀 Startup / VC

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