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API-first companies aren’t a new thing, but I have been paying more attention to them since TechCrunch Disrupt 2021, where I moderated a panel conversation with Plaid CTO Jean-Denis Greze. Plaid is a fintech company, yes, but it’s not just in fintech that API solutions are on the rise — and helping solve a great range of problems. — Anna
Tracking API-first companies
I was going to take a stab at defining API-first startups, when I noticed that Alex already had. And since it’s no easy feat, I’m going to keep the same scope: What I am talking about today is “any startup that either delivers its main value proposition via an API — Twilio, say — or is built to use APIs to facilitate a particular data transference — AgentSync, etc.”
The definition above comes from a post on the index of API-first companies launched by GGV Capital, a multistage VC firm whose areas of interest include “finding the most promising developer-first software companies commercializing APIs.”
GGV’s thesis on API-led startups already led the firm to back Authing, Pinwheel, Mindee, Stream and Agora, the latter of which went public in 2020. And outside of GGV’s portfolio, API-focused Auth0 was acquired by Okta for a whopping $6.5 billion, giving the firm yet another reason to track other private companies using a similar approach.
GGV’s index leaves exited companies aside and ranks the 50 API-led private companies that have raised the most funding. For lack of an IPO, Stripe tops the list, while AI/ML startup Deepgram is the last one to make the cut, having raised some $56 million in funding to date. In total, GGV says, API-first companies in its index have raised $12 billion in funding, including $5 billion in 2021 alone.
Beyond fintech
About 40% of GGV’s API-First Index consists of fintech companies. That’s a lot, but it also shows that there’s room for developer-first companies in other spaces. The promise of API companies, GGV wrote, is to “fundamentally simplify software development” — and there’s no reason why this would be limited to banking or payment solutions.
You could also argue that fintech was very emblematic of the first wave of API companies, paving the way for a more diverse range of API-led startups. For instance, former Plaid employees launched Stytch, an API-first passwordless authentication platform that raised a $90 million Series B round last November.
“I get why a16z says that every company is a fintech company, but I think that there are other areas that need our attention,” Jorge Madrigal told TechCrunch. He and his co-founder Alex Hernandez are building Vivanta, an API-first company centered on health data.
Madrigal and Hernandez previously both worked at fintech companies, API-led Belvo and PaaS startup Arcus, which Mastercard acquired last December. But for their next venture, they decided that their skills and experience with APIs would be of more use in a different sector. They are not alone: Madrigal is seeing other former Arcus employees now joining the health and wellness space, he said.
Going back to GGV’s index, API companies that are not strictly focusing on fintech range from AI/ML, commerce and logistics to comms, HR and security. In a comment to TechCrunch, VC Kyle Poyar concurred, noting that “API-first companies are showing up in nearly every industry.”
Breaking walls
Poyar is a partner at OpenView, a VC firm whose thesis predicts tailwinds for API-first startups, in a world in which software will no longer be a walled garden.
“Winning software companies in the Age of Connected Work will build for openness — open, API-based products that play well with the ecosystem of other cloud software. For API-first companies, openness IS their product, ” Poyar said in an email.
In the graph in this article, “build for openness” is one of the 11 principles that OpenView defined for product-led growth, the firm’s favorite approach to growing a business. In this growth model, it is product usage that drives customer acquisition, retention and expansion.
API-first startups are well suited for product-led growth. Unlike traditional software that needs to be bought as is, APIs are flexible, with an implementation that will ramp up, depending on the necessities of its end users and the companies they work for.
Even in the API world, not all end users are programmers. Vivanta, for instance, makes sure its documentation is suited not only for developers, but also for product managers and founders in its space, who often have a background in healthcare rather than in software engineering.
In this context, it will be interesting to see how API-first companies might connect to the trend of no-code and low-code. Poyar connects this to customer demand. “Businesses now want to extend their investments to deliver even more value rather than buy all-encompassing platforms. It’s no longer about lift-and-shift, it’s about extend-and-automate.”
10 investors discuss the no-code and low-code landscape in Q1 2022
If this view holds, we should expect to see the portion of API-first startups that are not fintech-focused grow. We’ll collect data and keep track of GGV’s index over the coming quarters to see how the mix shifts.
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