APIs are the building blocks of modern software, and their use continues to grow around the globe. A full 89% of investment into APIs will increase or stay the same over the next 12 months, Postman’s 2022 State of the API report found. And the evolving API-first approach is ushering in many innovations and startups into the field. This trend is epitomized by the latest research from GGV Capital, which maintains an API-First Index of leading developer-first software companies.
The API-First Index tracks API-first companies that have raised $50 million in funding or more. And as of Q3 2022, the number of businesses that met this threshold increased to over 60. Just in Q3 alone, $350 million in funding was raised by companies on the index, and, in total, the index represents over $14 billion in funding. Undoubtedly, interest and investment in this space are expanding and will continue to increase in the year ahead. It’s a good area to keep tabs on, as the emphasis on modularity impacts how software is pieced together.
I recently met with Tiffany Luck, partner at GGV Capitol, who oversees the API-First Index. Below, we’ll explore the index a bit more and get Luck’s viewpoint on why these findings represent a unique moment for API-first technology and business models as a whole.
The API-First Index
The API-First Index focuses on companies that serve niche functionally through APIs; also known as API-as-a-product. The list includes an assortment of API-based tools from FinTech, communications, health care, commerce and other sectors.
For example, Stripe is likely the most well-known API-as-a-product, as it is commonly integrated as a way for businesses to accept payments. There’s also MessageBird, an API for sending notifications across any channel. Other examples include Mapbox, an API for geolocation data, Mux, an API for creating live and on-demand video experiences, Nylas, which offers a popular email API and Alpaca, an API for stock and cryptocurrency trading and many others.
Currently, the index doesn’t include the entire API platform landscape of tools, which ranges from areas like API management to testing, documentation, monitoring, design, security and observability. There are also middleware integration platforms to consider as well. With these included, the list of well-funded API-related toolsets would surely be even longer.
Why the Excitement About API-First?
The number of people deciding to build API-first companies is rapidly increasing. These API-based web components are interchangeable and represent the future of software development. “The world is going toward web and cloud components,” said Luck. The trend represents a global movement with much effort reflected in Europe, Asia and the U.S. Furthermore, API models seemed resilient throughout ongoing economic uncertainty and the patchy VC funding of 2022. “APIs are holding up very well compared to the broader VC landscape,” said Luck.
So, why is there so much excitement around APIs? Well, people are looking for best-in-class structural blocks that can be used to build common features like geolocation, AI, weather, payments or specific CRM functions. Niche APIs can swiftly deliver particular features without the bulk of a large platform. Another reason is that they’re relatively sticky—API-based delivery models are efficient at building a self-service platform that expands over time, which is a very keen prospect to investors, said Luck.
Unicorn APIs Solve Hard Problems
In evaluating API-first companies, Luck looks for those offering B2B solutions to super-hard, shared problems. This equates to reusable functionality that is difficult to build, maintain and scale individually. Furthermore, the solution must solve a need that’s common across companies but that is not core to their products.
For example, Luck has her eye on a few impressive API-first use cases. Stream, for example, powers in-app user-facing features. Knock offers solutions for handling notifications. But many of the top most-challenging areas include financial services, as this functionality is difficult to build from a regulatory and connectivity perspective. Examples include Pinwheel, which aggregates real-time income and employment data. Method API does something similar but for aggregating consumer debts.
Luck described APIs as a “modern way of accessing what would otherwise be technically inaccessible.” We’re seeing this action unfold in open banking, as new standards around the globe now mandate that consumer financial data be programmatically accessible, often in the form of an API connection.
Developer Experience: The New Competitive Advantage
In a competitive market surging with powerful developer-facing tools, non-functional aspects such as developer experience (DX), security, performance and reliability are becoming more of a focus. According to Luck, developer experience is probably at the top of the pyramid as it represents a catch-all for many of the aforementioned traits. Specifically, developer tools with high-quality DX have excellent documentation and must maintain backward compatibility to avoid breaking changes on the consumer side. “Ultimately, what you’re implementing impacts that customer’s end customer. Customers want zero negative impact and zero disruption,” she said.
The API-First Index is good for the industry as it helps educate the public on private investing rounds. And as discussion around it increases, it brings awareness and visibility to the benefits of building API-first.
