Open Discussions About Funding API Startups
02 May 2017
It made me happy to read the Rise of Non “VC compatible” SaaS Companies, and see that there are more sensible discussions going on around how to develop SaaS business, something that I hope spreads into the specifically API as a product startups and API service providers. I know that many of my readers think I'm anti-VC--I am not. Or may I'm anti-startup--I am not. I'm anti-VC and anti-startup ideology becoming the dominant religion, pushing out a lot of really good people and ideas who can't play that game.
When it comes to Silicon Valley, if you push back, you get excluded from the club, and there are waves of people who step up to tell you "not all startups are bad" or "not all VCs are bad"--I wish I could help you understand how this response makes you look. Of course, they aren't all bad, but there are bad ones, and there is a lot of rhetoric that this is the ONLY way you can build technology when it isn't. There are plenty of ways you can develop technology, and build a business without the VC approach, or the cult of the startup.
There are more instructions you should follow in the rise of the non-VC compatible SaaS companies story, but the author outlines four types of SaaS companies, which I think applies nicely to APIi companies, as many of them will be SaaS providers:
- Funded SaaS: companies which finance their business with VCs a.k.a equity against money. From early stage startups with no revenue to companies going public with hundreds of millions of dollars of ARR, the range is extremely wide.
- Bootstrapped “scaling” SaaS companies: SaaS companies which manage to pass the $10M ARR threshold without VC money. Ex: Mailchimp or Atlassian (which raise VC money but at a very late stage) have reached the hundreds of millions of dollars of ARR without VC money. These “unicorns among unicorns” are very rare.
- Bootstrapped SaaS companies: bootstrapped companies which manage to reach the $300k — $10M ARR range without VC money.
- Bootstrapped Micro SaaS: “1 to 3” people companies which operate in the $1k — $300k ARR range, without VC money.
There are some ideas that should go VC, but there are even more that should not. I want to see more talk like this about the funding realities of an API startups. A sensible discussion about what the goals are, how fast a company should grow, and whether the company is building a business to develop software solutions that we sell to customers, or a business to sell some large enterprise--hell, maybe even go IPO. These are all viable options for your business, I'm just looking for more discussion about the priorities. One more thing, you should be having this discussion out in the open with the customers you are supposedly selling your products and services to--this is the important part, not just the having of the discussion.
I'm not trying to get in the way of you getting super filthy rich. I'm just trying to strike a balance between you building a company, and the stability and availability of your APIs, and API tools and services, in an industry I depend on to make my living. You see, APIs have gotten a bad wrap for not being stable, and going away at any time. This isn't an API thing, this is a VC funded startup thing. When you are telling your companies that you are building a business, with products and services to purchase, and then everyone bakes your solutions into their solutions, and you go away--that sucks. If you tell people the truth from the beginning and are honest and communicative about what your plans are, people can build and plan accordingly--the problem isn't APIs going away, it is startup founders not caring.
I am just trying to strike a balance between your business aspirations, and those of the people I help convince to use your APIs. Many of them aren't trying to get rich. They are just trying to build a business, and get their work done with your service, tool, and API. Let's start having more honest and open conversation about the variety of business models available to use when building API startups, and remember that not everything is a VC-worthy idea, sometimes you are just a viable feature for regular business owners like me.