Recent Fundraising Proves Business Value of API Economy Posted in Business Models Art Anthony November 23, 2021 API developers who have been in the business for a while undoubtedly remember when APIs were regarded as outliers in the tech space. After all, folks would say, APIs require in-depth knowledge of development and are out of reach of the general public. Those days are long gone. That’s thanks in part to the cloud, the rise of more business automation, and companies like Zapier and IFTTT that remove barriers to entry. In 2021 the API management market alone is already worth billions of dollars and could, according to Adroit Market Research, exceed $20 billion by 2028. The last year has seen a surge in the funding of API-first companies, and the value of these rounds regularly land in the range of tens to millions of dollars. But what exactly are the implications of this for the space as a whole? Let’s get into it. Recent API Funding Rounds Have Been Huge Perhaps the most notable funding round of this year, in the API space, is Postman’s summer $225 million Series D. This values the API platform at $5.6 billion, which isn’t bad going for a company that’s less than ten years old. RapidAPI, a platform that allows users to find, connect to, and manage thousands of APIs raised $60 million towards the beginning of 2021 to “support an influx of new developers to the platform.” This, in itself, offers more compelling evidence that APIs and API products are still very much on the rise. And, this year, there have been plenty more where that came from: Moesif secured a $12 million Series A round to dive deeper into how customers are using APIs. Cord raised a $17.5 million Series A round to add Slack-like features to apps. Skyflow raised a $45 million Series B round for their data privacy API. Yapily raised a $51 million Series B round for its open banking API. Alloy raised a $100 million Series C round for their anti-fraud platform. What’s notable is that these larger rounds aren’t replacing the more modest rounds of days gone by; they’re happening in tandem. As the large API-first companies take things to the next level, the new class is hot on its heels. Union54, for example, is the first Zambian startup backed by Y Combinator and raised a $3 million seed round for their card-issuing API two months after graduating from Y Combinator. The rate at which, as well as the scale at which, API-first companies are securing investment is exciting. It suggests that investors aren’t (just) looking for the next unicorn, a la Twilio, but see value across the board in the API space. Raising Capital for an API-First Company In 2011, friend of the blog Adam DuVander posited the idea on ProgrammableWeb that May 2010 was the year of the API. He cites that 1,000+ APIs were added to the ProgrammableWeb API directory in 2010, more than double the number added in 2009. At the time of writing, the directory contains almost 25,000 APIs. As recently as a decade ago, the API economy was a fraction of what it was today. The recent surge of funding for API companies is compelling evidence of what readers of this blog already know; this space is still actively growing, faster by the minute, and it’s one in which there’s a lot of money to be made. But is there a downside to that? Increased investment into the space means more competition, which isn’t a bad thing in and of itself. What could be bad is larger companies sweeping in and acquiring ambitious API companies — Google and Apigee, Salesforce and Mulesoft — if they go on to stifle what makes them unique. Or increase the prices as a way to make money…* *In a recent article, we wrote about the implications of gated APIs and expensive API calls. Does the API Economy’s Value Have a Ceiling? At the beginning of 2021, we considered if any API-first companies out there had what it took to become the next Twilio. With a current valuation of more than $50 billion, the answer to that question is still “no.” Or at least “not yet.” The rapid growth of companies like Postman, however, valued at almost $6 billion compared with $2 billion just over a year ago, makes it clear that the success of Twilio can be replicated. One issue is that, because Twilio continues to grow, it’s a moving target; no company can become the next Twilio overnight. And should that even be their target? Yesterday, at the time of writing, the value of Twilio’s stock dropped almost 18% in one day. The Motley Fool suggests that this is down to concerns about Twilio’s guidance — the company “remains unprofitable on a generally accepted accounting principles (GAAP) basis” and recently lost COO George Hu. Of course, you can point to just about any company, API-first or otherwise, to find peaks and troughs. Twilio’s stock value may be around 66% of what it was in February 2021, but it’s still more than double what it was in February 2020. And more than 10x what it was in February 2018. In other words? Although there will be hiccups along the way, the sky’s still the limit for API companies…whether they’re named Twilio or not.