APIs are the building blocks of modern software, and their use continues to grow around the world. According to Postman’s 2022 State of the API report, his 89% of investments in APIs will increase or remain unchanged over the next 12 months. And the evolving API-first approach has brought a lot of innovation and startups into the space. This trend is epitomized in his latest GGV Capital survey, which maintains his API-first index of leading developer-first software companies.
The API First Index tracks API First companies that have raised $50 million or more. And as of Q3 2022, the number of companies reaching this threshold has grown to over 60. In the third quarter alone, his $350 million was raised by companies in the index, with the index representing over $14 billion in total funding. Undoubtedly, interest and investment in this area has grown and will continue to grow. Focusing on modularity affects how software is put together, so this is a good area to monitor.
I recently met Tiffany Luck, a partner at GGV Capitol who oversees the API-First Index. Below, we delve a little further into the index to give Luck’s take on why these findings represent a unique moment for API-first technology and business models as a whole.
API first index
The API-First Index focuses on companies that serve a functional niche through APIs. Also known as API as a product. This list includes an assortment of API-based tools from FinTech, telecoms, healthcare, commerce, and other sectors.
For example, Stripe is probably the best-known API as a product because it’s commonly integrated as a way for businesses to accept payments. It also has MessageBird, an API for sending notifications on arbitrary channels. Other examples include Mapbox, an API for geolocation data; Mux, an API for creating live and on-demand video experiences; Nylas, which provides popular email APIs; stock and cryptocurrency trading; Alpaca, an API for
This index does not currently include the entire API platform landscape of tools. This includes areas such as API management, testing, documentation, monitoring, design, security and observability. There are also middleware integration platforms to consider. Including them would make the list of well-funded API-related toolsets even longer.
Why We’re Excited About API First
The number of people deciding to build an API-first company is growing rapidly. These API-based web components are interchangeable and represent the future of software development. “The world is heading towards his web and cloud components,” says Luck. This trend represents a global movement that reflects many efforts in Europe, Asia and the United States. Additionally, the API model appeared resilient during the ongoing economic uncertainty and his patchy 2022 VC fundraising. Rack said.
So why are APIs getting so much attention? People are looking for best-in-class building blocks that they can use to build common features like geolocation, AI, weather, payments, or even specific CRM functionality. Niche APIs can deliver specific functionality quickly without requiring a large platform. Another reason is that they are relatively hard to stick to. An API-based delivery model can efficiently build a self-service platform that scales over time. This is a very promising prospect for investors, said Luck.
Unicorn API solves hard problems
When Luck evaluates API-first companies, he looks for companies that offer B2B solutions to some of the toughest common problems. This amounts to reusable functionality that is difficult to build, maintain, and extend independently. Additionally, the solution should solve a common need across companies, which is not the core of their product.
For example, Luck highlights some impressive API-first use cases. For example, streams power user-facing features within your app. Knock offers a solution for handling notifications. However, many of the most challenging areas include financial services, as this capability is difficult to build from a regulatory and connectivity perspective. An example is Pinwheel, which aggregates real-time income and employment data. The method API does something similar, but for aggregating consumer debt.
Luck described APIs as “modern ways to access things that are technically inaccessible in other ways.” The move is unfolding in open banking. Emerging standards around the world mandate programmatic access to consumer financial data, often in the form of API connectivity.
Developer Experience: A New Competitive Advantage
The proliferation of powerful developer tools in a competitive market places a growing emphasis on non-functional aspects such as developer experience (DX), security, performance, and reliability. According to Luck, developer experience probably sits at the top of the pyramid because it encompasses many of the aforementioned characteristics. Specifically, developer tools with high quality his DX should have good documentation and maintain backwards compatibility to avoid breaking changes on the consumer side. “Ultimately, what we’re implementing impacts that customer’s end customer. Customers want zero negative impact or disruption,” she said.
The API-First Index is good for the industry because it helps educate the public about private investment rounds. And as the discussion around it grows, the benefits of building API-first are recognized and visualized.