As low-code startups continue to attract VC interest, what’s driving customer demand?

Mendix CEO Derek Roos shares his insight with The Exchange

Investor interest in no-code, low-code apps and services advanced another step this morning with Airtable raising an outsized round. The $185 million investment into the popular database-and-spreadsheet service comes as it adds “new low-code and automation features,” per our own reporting.

The round comes after we’ve seen several VCs describe no- and low-code startups as part of their core investing theses, and observed how the same investors appear to be accelerating their investing pace into upstart companies that follow the ethos.

The Exchange explores startups, markets and money. You can read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.

Undergirding much of the hype around apps that allow users to connect services, mix data sources and commit visual programming is the expectation that businesses will require more customized software than today’s developers will be able to supply. Low-code solutions could limit required developer inputs, while no-code services could obviate some need for developer time altogether. Both no- and low-code solutions could help alleviate the global developer shortage.

But underneath the view that there is a market mismatch between developer supply and demand is the anticipation that businesses will need more apps today than before, and even more in the future. This rising need for more business applications is key to today’s growing divergence between the availability and demand for software engineers.

The issue is something we explored talking with Appian, a public company that provides a low-code service that helps companies build apps.

Today we’re digging a little deeper into the topic, chatting with Mendix CEO Derek Roos. Mendix has reached nine-figure revenues with its low-code platform that helps other companies build apps, meaning that it has good perspective into what the market is actually demanding of itself and its low-code competition.

We want to learn a bit more about why business need so many apps, how COVID-19 has changed the low-code market and if Mendix is accelerating in 2020. If we can get all of that in hand, we’ll be better equipped to understand the growing no- and low-code startup realm.

A growing market

Mendix, based in Boston, raised around $38 million in known venture capital across a few rounds, including a $25 million Series B back in 2014. In 2018, Mendix partnered up with IBM to bring its service to their cloud, and later sold to Siemens for around $700 million the same year.

Earlier this month, Mendix announced that it had crossed the $100 million annual recurring revenue (ARR) mark, and was “on a trajectory to double annual recurring revenue in the next 18 months.” Those are big numbers for any company, especially one in a sector that we are paying attention to.

So, I wanted to ask a few questions to get a bit deeper into what is helping Mendix grow — booming market demand, the pandemic or perhaps a little of both? On the market front, I confirmed with the company that it actually reached the $100 million ARR threshold at the end of 2019, answering our question regarding the scale of demand for low-code app building services; it exists.

But what impact has COVID had on Mendix, and perhaps the broader low-code app building space? According to Roos, his company has seen “a significant increase in engagement since the pandemic started,” including a doubling of active developers on its platform to around 200,000 this year. That cohort of users built 120,000 apps in the first eight months of 2020.

That’s an active market. Driving the need for more apps, in Roos’s view, were governments needing to “speed relief to citizens,” along with companies of all sizes responding to logistical issues. The CEO cited demand from startups, to small business and all the way up to enterprise-scale companies for low-code apps. Presumably, then, the need for more business apps of the sort that Mendix and others can facilitate is widespread.

Our extrapolation from the CEO’s comments is that the market forces that made low-code app building services like Appian and Mendix attractive before have become even more acute in 2020, likely accelerating the entire sector. This probably explains why we can’t stop hearing about no- and low-code startups, services and venture activity.

Mendix, at least, is accelerating in 2020. In response to a TechCrunch question, Roos said that both his company’s revenue and ARR growth in percentage terms are “accelerating compared to 2019,” and that thus far “in 2020, Mendix has already surpassed the revenue growth it logged in the last three calendar years combined.”

In the CEO’s view, “low-code for the enterprise has come of age and is taking its place as a major player in the enterprise digital agenda.” If that holds up post-pandemic, it would be good news for every startup hoping to grow tall in the no- and low-code market.

2020 has thus proven to be quite the boon to Mendix and a few other players. Our next question will be whether smaller startups in the space are seeing the same acceleration of the larger players?