There is always this hot sector. Hot sector examples:

  • Ecommerce in 2010
  • On-demand in 2015
  • Fintech in 2018
  • Dukaan tech in 2020

There will always be 3-4 big players for all of these hot sectors, each backed by their own VC group (Nexus + Seq Cap vs Accel). Any feature that a startup builds will be copied by their competitors. Eventually, some consolidation will happen. The number of features, their quality, even tech, and design can’t be a differentiator over the long term.

My questions:

  • How do you create your moat as a startup competing in this hot sector?
  • How do you position yourself and differentiate yourself from your peers?
  • Is the winner dependent on which of these companies is more driven (follows 996) and can out-execute the other?
  • Is consolidation of the top 2 players the only end game?

I thought capital as a moat does not work, but after seeing WeWork’s IPO I have changed my views. It does work. But not always. Depends on where we are in the market cycle.

I was talking about this with a friend who works in VC. He told me that each year there is a new fad, the goal of each VC fund is to back one of the players, and hope that they will end up as the winner of the sector. But it is very hard to figure out the winner in year 1. So there is a lot of luck involved.

I have been thinking about this a lot.

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