Index Companies

This post is by Elad Gil from Elad Blog

Sometimes there are markets that are clearly going to grow massively over time. For example, ecommerce, genomics, crypto are all markets which were clearly going to compound over time. It might have been tough to call the winners of each market early, but it was clear the markets themselves would grow a lot.

One lens through which to view companies is to ask "what companies are an index of their underlying market"? 

Index companies often take a cut of every transaction in their space, or are a piece of infrastructure everyone in the market needs. For example, it is a hard to launch something into space in the West without using SpaceX. These companies may be ways to participate in the market broadly without having to worry about how wins in it.

Some example index companies are:

Online Commerce & Stripe. 

For many years Stripe effectively acted as an index of startups in online commerce. One can argue Stripe is now a proxy for the underlying global online economy. Buying Stripe means buying an important subset of the internet.

Crypto & Coinbase. 

Crypto is a dynamic market with hundreds of tokens beyond BTC and ETH. As long as Coinbase lists it and takes a cut of transactions, Coinbase is a proxy index for all of crypto. With its pending IPO, Coinbase will effectively be an index for crypto writ large. Coinbase is also unique as a high quality company which institutional investors can use as a proxy to participate (Read more...)