Accel Bets Big On Startup-To-Startup APIs

Uber isn’t just Uber. It’s Google Maps, Checkr background checks, Braintree payments, and Twilio texts. The best way to do business isn’t to build it all in-house. Top companies are increasingly piecing together a composite of APIs from specialized startups. That lets them concentrate on their unique value-add rather than reinventing the wheel.

Now those building blocks are turning into big businesses of their own with unique challenges. How do they get traction for their APIs? What does it take to support a developer ecosystem? How much should they charge?
Accel Partners thinks it can help. It’s learned from investments in Braintree, Segment.io, Slack, and Checkr. But Accel also knows it missed the boat on Twilio and Heroku. So to attract more API businesses and share its insights, Accel is announcing a new investment focus in what it calls “APX,” the API-ification of business.

Accel APX partners (from left) Rich Wong and Vas Natarjan

“APX is the current picks and shovels,” Accel Partner Rich Wong tells me, alluding to the success of merchants who sold mining tools during the gold rush.
Together with fellow partner Vas Natarjan, Wong will bring more of Accel’s dollars to the APX space. Both were already making investments in this area, but now it’s a formalized theme for the fund.
To kick things off, on March 19, Accel will hold its first APX Conference in San Francisco. It features executives from consumer companies that rely on APIs, as well as the startups that build them. Facebook, Amazon, Dropbox, and Twitter will represent, as well as younger businesses like URX, Checkr and Chain.

Buying The Building Blocks

Developers are constantly posed with the question of whether to buy or build. You either pay for a specialized API or you spend the resources trying to replicate them. But as the cogs get more complex, and the talent wars rage on, in-house development keeps looking slower and more expensive.

“You don’t need to go out and source the talent to build these functions,” Natarjan tells me. “You can outsource entire swatches of your company to very reliable APIs. It’s a bit of a talent arbitrage game.”

Wong followed up, asking “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?”

Take background checks, for example. On-demand and sharing economy startups like Instacart or Homejoy need to know the contractors they send to customers’ houses aren’t going to rob them. Normally, these companies would have to hire a team to compare potential hires’ identities against watch lists and criminal records.

But their businesses are about grocery delivery and home cleaning, not background checks, so building a team or system to handle them would be a distraction. “With Checkr, that whole function has been reduced to an API,” Natarjan says. Instead of recreating something done better elsewhere, “You can dedicate 100% of your efforts to the 1% that is going to differentiate a product.”

Evangelism > Sales

With companies cobbled together from APIs like HotelTonight, Uber and Instacart thriving, it seems obvious why Accel would want a piece of parts. But why should APX startups turn to Accel?

“There are all these nuisances from a go-to-market perspective that we’ve seen work at scale,” Wong insists.

A few of the major areas where Accel wants to lend assistance include:

• How do API businesses market themselves? Striking deals with developers is much different than wine-and-dining a head of IT. Natarjan says “It’s much more about evangelism than it is about sales.”
• How do you keep a developer ecosystem happy? Wong says developers are “unique personality types that are very intelligent” who sometimes “think they can build just as good or better technologies themselves…until they try.” Ideally, developer customers are teaching API businesses what they need next.
• How do you price an API? “Developers are notorious for going through the buy vs. build decisions,” says Natarjan. “How do you price over time so developers feel comfortable with you?”
• How do you scale to handle the enterprise? Signing a new customer can suddenly ramp up an API business’ engineering needs. There are special hiring and management strategies to maximize uptime.

Accel has planned APX Conference sessions on each of these topics for developers inside and outside its portfolio. It needs to box out other funds, such as Bessemer, which are known for giving API businesses the firepower they need.
“There’s going to be a battle for developer mind share extending beyond the startups,” says Wong. “The Googles, the Microsofts, the Amazons” are all seeing the same trend, and these lumbering giants are trying to course-correct as quickly as they can.
“Four to five years ago, the idea was that you couldn’t build a great business providing services to developers,” Wong says. “I think that mindset has shifted dramatically.”