API startups are so hot right now

Image Credits: Juana Mari Moya / Getty Images (Image has been modified)

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

A cluster of related companies recently caught our eye by raising capital in rapid-fire fashion. TechCrunch covered a few of them, and I read coverage of others. Looking back through my notes and the media cycles that they generated, it feels safe to say that API-based startups are hot right now.

What’s fun about this trend is that the startups we’re considering are all relatively early-stage, so they aren’t limping unicorns staring down a closed IPO window. Instead, we’re taking a peek at startups that mostly haven’t raised material external capital — yet. They have lots of room to grow.

And the group is somewhat easy to understand. Sure, I don’t fully grok their underlying tech — that’s a bit of the point with API startups; they take something complex and offer it in an easy-to-consume fashion — but I do get how they make money. Not only are their business models fairly easy to understand, there are public companies that monetized in similar ways for us to use as a framework as the startups themselves scale.

This morning let’s look at FalconX and Treasury Prime and Spruce and Daily.co and Skyflow and Evervault, all API-focused startups to one degree or another, to see what’s up.

What’s an API-based startup?

Simply: a high-growth company that delivers its main service via an application programming interface, or API.

APIs help services communicate with other apps, allowing them to execute tasks or request information quickly and easily. These services are sometimes highly valuable because they can offer something complex and difficult, easily and simply.

Twilio, picking a famous example, provides a telephony-focused API. Other services can plug into Twilio’s API and use it to send text messages, make calls and more. Twilio does all the hard work on the back-end to hook up to the global phone system. Other apps pay Twilio when they use its API, allowing them to do more at a lower price than it would cost to build a Twilio clone.

And as Twilio is operating at scale, it can afford to offer its API-based services at reasonable prices while still generating healthy margins. Everyone kinda wins. That’s the idea of digital services and software eating the world — can we offer more at a really cheap price and still make money?

It’s like the inverse of Oracle.

Anyway, here’s the recent cluster of API-based, or at least API-powered, startups that have raised recently, how much they took on and what they do:

There might be a few more API-focused companies than what we’ve noted here that recently raised capital. We’ll keep an eye out for more.

Finally, money. There appear to be two main ways that API-focused startups charge for their services, and a hybrid:

What will be fun, given how closely in time the above companies raised, is that they will probably raise in the future on a similar cadence. So, we’ll get to update this post in the future with progress. Fun!

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