2022 Year in Review

When GGV launched the API-First Index in Q1 2022, our objective was to highlight the increasing number of companies that were building with a developer-first mindset. While startups like Plaid and Stripe have drawn attention in recent years due to large financing rounds and valuations, building with an API-first orientation has been around for many years. As seen with companies like Twilio, the business model also translates to public markets.

Further, we’d be remiss to not acknowledge the broader, thriving API economy, including companies such as Postman and Kong, that are supporting the design, development, and deployment of APIs.

‍

The API-First Index started as a list of 50 API-first companies ranked by total funding raised. As we continued with our quarterly updates throughout 2022, we wanted to expand the list to include more companies loved by developers. Therefore, in Q3 2022, we revised our Index to include any API-first company that has raised $50M+ of financing. With this new methodology, the API-First Index now showcases 63 companies, and GGV continues to track a larger list of 100+ API-first companies—many of which we’re optimistic will reach the $50M funding milestone in the future.

‍

API-First Index Q4 2022 Update

‍

• Slower investment activity in Q4 similar to broader VC investment environment
• One addition to the API-First Index: Merge
• $134M raised across three rounds

API-First Index Full Year 2022 Insights
‍

Since we began tracking companies on the API-First Index, we observed a few themes*:
‍

1. 2021 was an outlier year for the VC industry broadly, including API-first companies.

‍

For companies featured in the API-First Index:

2. Total funding raised in 2022 exceeded 2020 and 2019 (but fell below 2021 levels).

3. Average deal size continues to grow.

4. Fintech and Communication sectors continue to dominate the Index.
‍

*Please note all financing information is pulled from public sources, including but not limited to PitchBook and Crunchbase. Any undisclosed or upcoming financing rounds will not be represented in the analysis.
‍

Understanding API-First Index Company Deal Activity
‍

1. 2021 was an outlier.
‍

It has widely been acknowledged that 2021 was a record year for the U.S. VC environment. According to PitchBook-NVCA’s Q4 2022 Venture Monitor report, U.S. VC deal activity in 2021 reached $344.7B raised across 18,521 deals, which was far above the previous record of $171.2B across 13,280 deals in 2020.

‍

The trends we observed in deal activity can be seen at the sector level as well:

‍

• In 2021, software companies raised $135.2B across 7,199 deals as compared to $55.1B raised across 4,776 deals in 2020.
• For the 63 companies on the API-First Index, deal activity trends appear to hold with $7.1B raised in 2021 compared with $1.8B raised in 2020.
  ‍

We believe it’s important to establish that 2021—catalyzed by historically low interest rates and rapid digital adoption spurred by the COVID-19 pandemic—was a once-in-a decade moment. So moving forward, this analysis will use 2020 deal activity as a baseline for comparing 2022 deal activity.

2. Total funding raised in 2022 beat the record funding years of 2020 and 2019.

Our analysis of the 63 API-First Index companies illustrates that 2022 was a reset from 2021’s record deal activity.
‍

• In 2022, API-First Index companies raised $2.1B—this is a 70% decrease in total funding raised in 2021, but 19% higher than 2020 and 45% higher than 2019.
  ‍

Mega-rounds contributed to the record-breaking 2021 funding landscape:
‍

• Notably, 17 companies raised over $100M in 2021 with some of the largest rounds from companies like MessageBird ($1.2B), DriveWealth ($735M), Stripe ($600M), and Plaid ($425M), to name a few.
• Reviewing 2022, we’re seeing fewer mega-rounds—only 7 companies raised over $100M—which is also an indicator of a reset in the VC funding landscape.
• Note: Stripe is reportedly in market raising a multibillion-dollar round. We believe this is a unique case.
  ‍

3. Average deal size continues to grow.
‍

In 2022, the total deal count was 33—this was a 31% and 37% decrease in deal count from 2020 and 2019, respectively. Yet, what we observed in our analysis is that average deal size continues to increase in 2022 with an average round of ~$60M versus ~$30M-$35M during the 2019-2020 period.
‍

The increase in average check size is a positive indicator of tailwinds in the API-first sector. We’re observing how investors are interested in making bigger bets in the API-first category as companies mature and illustrate real value.

While the 2022 data suggests a clear opportunity for later-stage companies, we will continue to watch closely how early-stage companies fare in upcoming years. Our hope is that growth at the later stages will only validate the opportunities available in the API-first category and that many early-stage API-first companies will continue to attract investment.
‍

4. Fintech and Communication sectors continue to dominate the Index.
‍

The API-first business model has applications across categories, and we’ve observed this with companies like Patch in climate, Shippo in logistics, or Ribbon in healthcare.

Despite the potential for several use cases, our analysis shows that two categories stand out: Fintech and Communications.
‍

• More than one-third of the API-First Index companies are fintech, addressing critical financial tasks like payment processing with Stripe and Modern Treasury, payroll connectivity with Pinwheel, or real-time small business financial data with Codat.
• The dominance of fintech extends beyond the companies listed on the API-First Index. In the first three months of 2023, early-stage companies like Spade, a financial transaction enrichment API, raised a $5M seed round led by a16z, and Puzzle raised $20M led by General Catalyst to power modern accounting with an API that translates real-time financial information into a general accounting format.
  ‍

Communication tools have also sustained investor interest. Deepgram raised a $47M Series B led by Madrona in Q4 2022 to expand upon its AI-powered audio-to-text API. As one of the largest API-first financing rounds of Q4, it also is an indicator of investor interest in the intersection of API-first businesses and AI. We’re optimistic about the influence that AI will have on the API-first category.
‍

Looking Ahead
‍

We’re excited to track how the API-first ecosystem evolves throughout 2023. We’ve already seen a new entrant to the API-First Index in Q1 2023 with Finch, an HRIS API, raising a $40M Series B co-led by General Catalyst and Menlo Ventures. We’re always looking to meet API-first companies. If you’re building API-first, please reach out to us at apifirstindex@ggvc.com.

‍