Why Developer Tools Startups Are Finally Getting VC Funds

On Nov 19, 2021

Developer tools confused investors just five years ago, but they’re starting to see the value.
Startups took advantage of the lack of popularity, dominating the new markets they created.
In 2021 investors contributed $37 billion to cloud and web architecture firms to support developers.

Startups keep popping up to try to make developers’ lives easier — and they’re attracting venture-capital attention.

Developers and their tools confused investors as recently as five years ago. VCs didn’t understand the premise behind developer collaboration or why developer-focused startups were popular. But now they’re noticing how heavily the web relies on developer contributions — and are investing huge funding rounds in web-development startups.

Investors raised over $37 billion for cloud- and web-architecture startups this year, $17 billion more than they raised in 2016, according to the analyst firm PitchBook. This includes the hot web-development startup Netlify’s $105 million Series D funding round at a $2 billion valuation earlier this week, led by Bessemer Venture Partners. And earlier this year, the DevOps startup Honeycomb secured a $50 million Series C, while GitLab’s initial public offering skyrocketed the company’s valuation to $15 billion.

“As someone who lives in Silicon Valley, I can tell you developers are increasingly important right now,” Rishi Jaluria, the managing director in software equity research at the financial firm RBC, told Insider. “Giving developers effective tools is a no-brainer.”

Investors reward startups that allow developers to quickly build and scale applications, Jaluria said, viewing web development as a savvy investment strategy demonstrated by funding success at Twilio, Stripe, and Shopify.

The recent Netlify investment only acts as further evidence of investors’ interest in developer tools. The platform promises streamlined web development and has gained traction since its $12 million Series A round in 2017, raising more than $200 million to date, according to Crunchbase.

And it has paid off for investors. Investing in web startups creates big returns, Mary D’Onofrio, a partner at Bessemer Venture Partners, told Insider.

But why are investors just now shifting their perspectives on web-development tools? Investors’ change in attitudes reflects how the web as a whole operates, George Mathew, a managing director at Insight Partners, which invested in Honeycomb’s Series C, told Insider. For example, more parts of the enterprise are managed in a distributed environment, and the last generation’s tools weren’t built to manage that, he said.

Investors want to make up for the missed opportunity that led to a web built on systems that exclude developers and also to ensure developers are equipped to navigate future technologies, Florian Leibert, a partner at 468 Capital, told Insider.

But lack of popularity early came with an advantage for startups. Because the developer space came to popularity only in recent years, it’s relatively unpopulated by the Big Three of Amazon Web Services, Microsoft Azure, and Google Cloud. This gives developer startups more room to thrive and even partner with the big companies undisturbed, Jerry Chen, a partner at Greylock, told Insider.

Developer startups exist in uncharted territory, establishing entirely new markets, like Jamstack, an approach to building websites using JavaScript, application programming interfaces, and markup languages. The Netlify cofounder Matt Biilmann coined the term Jamstack just six years ago, and it now boasts a community of over 2 million developers, according to Netlify.

Still, there’s more room for more investment, Chen said. Developer tools like application programming interfaces are slightly underfunded in comparison with other booming areas of emerging tech like artificial intelligence and machine learning, he said.

Successful startups like Netlify hope to change that by establishing funds to bankroll the next stage of web development, looking for companies that continue to improve on how developers build code, the Netlify cofounder Chris Bach told Insider. The startup announced the Netlify Jamstack Innovation Fund, seeking to invest $10 million in companies dedicated to Jamstack web development.

“We have first-mover’s advantage in a space that’s becoming everything,” Bach said, “But that said, of course, that just means that it’s also ours to lose.”

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