Early Adopter
1 min read
Early adopters try a new product, service, or asset before the majority of the market. Early adopters face higher risk because the innovation has not been vetted by the market or other investors. However, early adopters believe the asymmetrical potential upside of their investments outweighs the market’s uncertainty.
Early adopters are essential to the social spread of innovative ideas. Sometimes, early adopters are financially rewarded in the long run, because they were able to invest with a low cost basis and exit their position at a profit. Others may lose capital if the innovation never reaches the value they anticipated.
Early adoption is a form of information arbitrage, where investors risk capital in exchange for insights or the opportunity to have higher returns and preferential access to an asset the rest of the population does not possess. However, early adoption carries more risk than waiting for social acceptance and proven market performance. In order to bootstrap a network effect for a new idea, early adopters must typically be evangelical of the new idea in order to attract new users.