Programmableweb You’ve just closed a $35 million round of funding. Most investors look to get back 10 times their investment and hope for much more. What convinced them to back you?
Chet Kapoor, Apigee CEO A series F round is different from early-stage rounds, a different level of involvement. But through all the stages principally it was three things: market opportunity, track record, and people.
Let’s look at the market: The whole world is changing, every business. Apps are at the core, data is becoming the currency, and APIs connect the apps to the data. Every enterprise is going through that change. If you think about where we are, you will realize we are in the very early days. The market opportunity is large, partly because it cuts through many traditional spaces. Look at companies like AT&T and Walgreens. They are so different from each other. Yet they are exploiting these same tools and changes. Then look at who this affects: B2B, B2C, B2E [Business to Employee] and of course B2D [Business to Developer]. Then we, along with investors, extrapolate forward from that. It’s not hard to see that there is a huge market opportunity.
That’s the market. Now look at our track record: it is awesome. We have 400 customers, many great names. What they are doing with our tech is very broad. It’s more than APIs; they are leveraging analytics and data. They are using us to go to market faster. This track record translates into momentum. Year over year growth exceeds 100% for the last several years. Quite a bit over that.
We do come from small numbers, a small initial base. So it’s easier to grow fast at this stage. But the numbers are getting big enough that, knowing what competitors are doing, our numbers far exceed others.
Finally, let’s look at our team. You’ve previously interviewed Bryan Kirschner and Anita Paul. [See Exclusive Interview: Apigee Announces Launch of Enterprise Monetization Services] We have a bunch of rock stars in the company. That’s what drives the execution. You can see the faith in our team reflected in this round of funding. We have both new investors and earlier investors returning to invest anew.
PW How does this funding change the competitive landscape; what does the size of the investment signal?
CK Everything we see is visible to everyone else. That means others will want to participate in the market and we welcome that. Second, we made a very conscious choice to focus on our customers’ problems. It’s a focus on two things, what we think will happen plus talking to customers about how they see things unfolding. We don’t spend time thinking about which competitors got acquired and who is coming in to compete. We focus on customers and developers. As long as we keep playing to that, we’ll be okay.
Our choice of focus has had consequences: we are the biggest, because customers reward that focus.
PW To ask a question that investor Warren Buffett uses, what’s your moat? What protects you from the competition?
CK The only moat any company ever has is momentum. It is very hard to compete against the power of momentum. That is by far our biggest moat. We know how to attract large customers because we have a great self-service product. We have developed a feel for where the puck is going to be.
PW Let’s stay on that for a minute, the moat question. Compare your answer of momentum with a recent answer for a Berkshire Hathaway acquisition a couple of years back. Buffett was looking into acquiring Lubrizol, but was reluctant because all the company did was make oil for engines. This put him off initially because it seemed obvious a competitor could come in and copy the business. But the head of Lubrizol argued that they work carefully with their customers who make engines to design precisely the right oil for that engine. That isn’t easy to duplicate, either from a chemical expertise point of view or a customer relations point of view. Hearing that, Buffett pounced. Compared to momentum, it seems the better moat.
CK Momentum is enough. It gives you breadth, simplicity and scale. That is a significant moat. You can’t deliver a simple, scalable and broad product. We aren’t stopping. That’s number one. The second part of the moat is the process of making our customers successful. Lots of companies have great technology but they don’t know how to go to market. We’re constantly exploring how developers use our product, and from that asking, how do we make them successful? It sounds simple. But doing it at scale is not easy, and doing it in a global market that is changing is not easy. Helping companies go to market makes a difference.
Let me give you an analogy. If you are 10 miles down the track from your competitors, no one is going to be able to run a series of sub 4 minute miles to catch you, as long as you are moving forward with greater and greater momentum.
PW You mentioned the Wayne Gretsky saying about skating to where the puck is going. So, where is it going?
CK A lot of companies base their decisions on what’s in their rear view mirror. That’s different from looking forward, which is where we need to be. We’re asking companies how they will transform themselves. APIs, apps, everything is rapidly changing. If we can solve these issues consistently for customers then we will succeed. And we have to analyze them differently. People are still getting their heads around API security, which is crucial. But API security is just one sliver, one example of what they need to solve in order to move forward. We’re looking at and addressing all the pieces.
PW When CIOs ask you what they should do about their legacy application and data architectures, what’s your answer?
CK If it works, leave it. If it’s not working, go to the next solution. But our attitude is, let’s leverage what you already have. Let’s start by exposing the legacy system first: keep the asset and expose it to APIs for apps. Then go from there.
PW Any piece of the puzzle we have missed?
CK Let me just add a point about the implications of who invested in the recent round. Blackrock is a great endorsement as a late-stage investor. Accenture is phenomenal and speaks to our momentum and where we are. That they chose to partner with us is a testament to what the market for API platforms and assisting companies that have APIs has become, as well as a testament to our success.
PW Thanks, Chet.
In Part 2 we talk with Promod Haque of Norwest Venture Partners to get an investor’s perspective on what Apigee’s round signals for the future of the API economy.