Everyone warns you not to build on top of someone else’s platform.
When I first started in VC more than 10 years ago, I was told never to invest in a company building on top of another company’s platform. Dependence on a platform makes you susceptible to failure and caps the return on your investment because you have no control over API access, pricing changes and end-customer data, among other legitimate concerns.
I am sure many of you recall Facebook shutting down its API access back in 2015, or the uproar Apple caused when it decided to change the commission it was charging app developers in 2020.
Put simply, founders can no longer avoid the decision around platform dependency.
Salesforce in many ways paved the way for large enterprise platform companies, being the first dedicated SaaS company to surpass $10 billion in annual revenue supported by its open application development marketplace. Salesforce’s success has given rise to dominant platforms in other verticals, and for founders starting companies, there is no avoiding that platform decision these days.
Some points to consider:
- Over 4,000 fintech companies, including several unicorns, have built their platforms on top of Plaid.
- Recruiters may complain about the cost, but 95% still utilize LinkedIn.
- More than 20,000 companies trust Segment to be their system of record for customer data.
- Shopify powers over 1 million businesses across the globe.
- Epic has the medical records of nearly 50% of the U.S. population.
What does this mean for founders who decide to build on top of another platform?
Increase speed to market
PostScript, an SMS/MMS marketing platform for commerce brands, built its platform on Shopify, giving it immediate access to over 1 million brands and a direct customer acquisition funnel. That has allowed PostScript to capture 3,500 of its own customers and successfully close a $35 million Series B in March 2021.
Ability to focus on core functionality
Varo, one of the fastest-growing neobanks, started in 2015 with the principle that a bank could put customers’ interests first and be profitable. But in order to deliver on its mission, it needed to understand where its customers were spending their money. By partnering with Plaid, Varo enabled more than 176,000 of its users to connect their Varo account to outside apps and services, allowing Varo to focus on its core mission to provide more relevant financial products and services.