The Impact of Network Effects on Investment – Crossbeam
The article “Crossbeam lands $76M Series C as network effect fuels partner cloud growth” explains how a company called Crossbeam secured a large Series C funding following the impact of a network effect on the number and size of its customers. Crossbeam is a B2B (business to business) company that focuses on helping other companies build partnerships. Series C refers to a later stage of investment into a company. Crossbeam’s CEO correctly predicted that increasing customers would attract more customers and in turn more investors to his startup.
The network effect in Crossbeam’s case is that the value of the company’s service to a potential customer increases as the number and size of Crossbeam’s other customers increases. The article provides a visual representation of Crossbeam’s customers in the form of a network graph that updates as time passes. As this graph updates, the effect of the network effect on the growth of Crossbeam’s customers can be observed. The number of customers increases at an increasing rate, and the number of connections between customers increases similarly. The increase of connections between customers is how we can understand the increase in value to a customer as more customers join; more customers allow existing customers to explore new partnerships.
It is rather intuitive that this network effect, the cause of current and continuing growth for Crossbeam, attracted more investors. Investors in the Series C round included Salesforce and HubSpot, both of which sell software to help companies manage their relationships with customers. These companies can use data presented by Crossbeam’s services to more effectively carry out their services. The network effect’s impact on investment can be explained specifically through the impact of Crossbeam’s growth on these two companies. When more customers are using Crossbeam, it is more likely that more people will feed data into Salesforce and HubSpot’s systems, thus increasing the value of Crossbeam to Salesforce and HubSpot and other investors. Certain investors’ interest is not tied just to the hope of profit from Crossbeam’s growth, but also the impact of Crossbeam’s growth on the investors themselves.
This article is a testament to the value of studying network effects. The profound real-world implications on business and the economy of network effects can be seen through this example.