Investment implications

• As markets are becoming more concentrated and driven by network effects, investors need to have a framework to identify rising superstar firms.
• Investors looking to capture high-growth opportunities previously only found in early-stage startups should look towards larger companies (either privately or publicly owned) that are effective in building or acquiring new technologies, products and services.
• Given the risk of "kill zones" around superstar tech companies, VC investors should consider firms that don't directly compete with large incumbents. Rather, they should look for opportunities in areas with low market concentration and the absence of a dominant superstar.
• It is not clear how public equity markets will judge the "profitability vs. growth" tradeoff for the coming wave of IPOs. Investors should consider a highly active approach to play in this space, picking fundamental managers that have a long-term track record in successfully building concentrated exposures.
• With rising market concentration and accelerating network effects, investors will need to develop a framework to identify rising superstars. Specifically, investors should look for firms that:
• Effectively use proprietary data to protect or enhance their leading position;
• Have a strong recruitment pipeline for acquiring high-end talent;
• Exhibit increasing returns to scale as they capture network effects;
• Are national or regional leaders.