Hi, it’s Aarzoo from the HEC Paris AIS VC & Growth team. Under the Hood is a newsletter about recent developments in the Venture Capital industry, our perspective on key trends, and deep dives into how VC works.
This is the first in a series of market deep-dives we plan on conducting as a team. Don't hesitate to add your views via comments!
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Shopify, Stripe, Twilio, Plaid and Segment are some of the most valuable tech companies today, with a combined estimated value of over $180 billion. One thing they all have in common is that their core value proposition is greatly supported by Application Programming Interfaces (APIs).
💡 Check out Mulesoft's super intuitive explanation of what an API is.
APIs have been a key part of companies' tech stacks for almost 20 years - they were first popularised by Salesforce, eBay, and AWS in the early 2000s as a means to integrate services in the backend (go further). They then went on to enable some of the most important technologies of the past decade – social (APIs enabled the success of Facebook and Twitter), cloud (AWS proved that infrastructure could be deployed cheaply using APIs), and mobile (APIs enable interconnectivity of mobile apps).
Thanks to major shifts in the technological landscape (detailed in the next section), APIs form a key part of the tech stack of most products today. They facilitate communication (exchange of data) between different software (B2B/ B2C frontends, core enterprise systems, other APIs) and can be designed for any level of granularity (via abstraction). Swagger very aptly describes APIs as the 'glue of the digital landscape'.
API startups have raised $1.06 billion in venture funding in 2018 alone and the Global API Management Market is expected to be worth $5.1 billion in 2023 (source), making it all the more interesting for us to dig into this space.
To understand why APIs are so important today, it is worthwhile to look at the evolution of the SaaS industry.
SAP: ERP systems were the first step towards automation of white-collar work: SAP was founded in 1972 by 5 IBM employees with the aim of developing a business application software capable of processing business information in real-time. In 2004, SAP released their mySAP Business Suite comprising of ERP, CRM, SCM, SRM, and TMS applications, all of which were integrated in the backend with the help of NetWeaver, a portal technology developed by Israeli software company TopTier Software.
SAP: Highlights