API Economy Sees Increased Venture Capitalists Interest

According to powerful Silicon Valley venture capitalist Marc Andreessen, software is eating the world. And if that’s true, APIs are a big part of the trend.

But despite the popularity and importance of APIs to the modern software industry, many investors are still somewhat skeptical about API-centric companies. That, however, could be changing in a big way.

One of the firms that’s increasingly looking to fund API-focused businesses is Accel Partners. Last week, the venture capital firm, which has invested in companies like Facebook and Dropbox, held its first ever Accel APX Conference “themed around the rising importance of APIs in today’s startup stack and the opportunities/challenges for platform builders.”

Speakers hailed from companies like Parse, Uber, and Braintree, and they discussed topics ranging from vertical APIs to developer evangelism and support. Accel partners Rich Wong and Vas Natarajan, the conference’s organizers, explained why the time was right to create a forum to discuss APIs exclusively:

Today’s fastest-growing startups aren’t just launching great products, they’re launching “composites” – stitching together off-the-shelf APIs with proprietary code, and wrapping it all in a unique brand and design. For anyone moving at startup-speed and building at web-scale, APIs aren’t just a band-aid to the future — they’re a necessary part of the foundation.

They went on:

Simultaneously, the entrepreneurs behind these APIs are building sustainable, independent businesses. Through authentic evangelism, simple-to-scale business models and a strong focus on user support, developer platforms like Dropbox, Braintree, Segment, and Twilio are capably powering the engine of this new “APX Economy.” Up and down the stack, we’re seeing the “API-ification” of legacy vendors – proving that great technology impact plus a developer-first consumption model are a winning combination. Not only are these emerging winners unlocking a lot of incumbent value, they’re opening up entirely new markets. (And possibilities!)

As Wong and Natarajan see it, APIs are and will continue to be the fundamental building blocks of many companies. They’re “current picks and shovels,” Wong told TechCrunch, and they give companies the ability to acquire the functionality they need without building it internally. “Why would you go start your own payments capabilities, your own payment analytics, your own map capabilities when they’re so easily accessible from these other companies and are arguably better?” he asked.

In Silicon Valley, where startups and major tech firms alike complain that they can’t hire good engineers fast enough, APIs also serve another purpose. With APIs, “you don’t need to go out and source the talent to build these functions,” according to Accel’s Natarajan. “You can outsource entire swatches of your company to very reliable APIs. It’s a bit of a talent arbitrage game.”

Thanks to its investments in a number of API-centric companies, Accel believes that it’s perfectly positioned to help founders of API companies build successful businesses. “There are all these nuisances from a go-to-market perspective that we’ve seen work at scale,” Wong explained in a not-so-subtle pitch to founders who might be working on the next big API and looking for funding.

But Accel will likely have competition for deals before long. API management and analytics firm Apigee is planning to raise nearly $90 million in a public offering that could value the company at $700 million in what will be a major milestone for the API economy. Other API-centric companies, like Twilio, are also considered near-term IPO candidates. Successful IPOs for a handful of API-focused businesses will only attract more interest in the market, and could help persuade the investors who are still not convinced of the viability of companies that make money primarily by hawking APIs to other businesses.

That would be great news for founders of API-centric companies looking for funding. Despite the hot tech market, consumer and traditional enterprise companies still attract the lion’s share of investment. And if investors show increased interest in funding API-centric startups, we could see a new wave of entrepreneurs willing to build API-based businesses of their own.

Be sure to read the next API Strategy article: WhatsApp Will Not Release Public API


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