Why do VCS see market opportunity in dev tools?

Question

This trend has no stopping it seems. Every dev tool startups are getting funded.Some of these startups are simple clones of existing proprietary services offered by AWS and other providers. (Like Cognito / Auth0)Why VCs are betting on this market? What is the opportunity to build a huge business here for a new startup, beating reputed players like AWS, Auth0 etc? What is the conviction of VCs here that these new startups will build a $100M business?I'm confused.Also, despite getting a lot of pessimistic comments on the future of such startups here in HN, they seem to raise further rounds (Series A, B) and even building a stable business.I feel like VCs are better at spotting something huge in this space, than the actual users (I mean developers) who feel pessimistic. Lol.

anandnair · Accepted Answer

Dev tools market is indeed an interesting business to make tons of money. Because of the huge value that it offers to businesses. If you look at the dev tool product companies (even open-source ones) started 10 years back, most of them were either acquired for billions, and many of them did IPO. And most VCs missed this opportunity since they were skeptical about this space.
I think that is what is driving the current VC funding trend in dev tools. Also, considering the future of software engineering, dev tools will have even more adoption than before.
And regarding the pessimistic comments in HN, they are mostly coming from people who lack in-depth knowledge about how businesses work.

codegeek · Answer

I love dev tools. Few reasons I can think of:
1. Software is everywhere. To build/run/manage software, you need Dev Tools. The demand can only go up as we continue to depend on software for everything.
2. Dev tools solve specific problems at least to start with. This makes it a bit easier to find PMF faster or die. Faster PMF = Faster Growth capability = Chances of Unicorn. VCs love that stuff.
3. Lot of current success already with Dev Tools as you mentioned. VCs have a herd mentality. They follow where the success is. Dev Tools has been hot for a while and will continue to be.
4. Dev Tools are usually started by techies who love building tools and cannot be started by MBA types usually. This means that the founders are usually solid with a background in those areas and they are likely to succeed more. Just my personal opinion.

jstx1 · Answer

VCs have no idea what to do with their money, on the other hand potential founders gravitate towards dev tools because it's a space they know well. It's not necessarily that they're seeing value (not saying that there isn't value there either).
Think of it as
[startups skewing towards dev tools] >> [clueless VC] >> [many dev tools startups get funded]
This actually works even if they aren't clueless - they can only respond to the opportunities presented to them and that input sample will be biased.

time0ut · Answer

It makes sense to invest in the companies selling shovels in a gold rush. If the VCs are investing in developer tools, I guess it means they think the gold rush is still on.

re-thc · Answer

> Every dev tool startups are getting funded.
> beating reputed players like AWS, Auth0 etc?
Maybe your view of "dev tool" is too broad.
Identity shouldn't count as a dev tool. Perhaps security. It can be used to help manage end users. AWS isn't a "dev tool" either.
There's no 1 answer as we're mixing in a lot of things. VCs will see things differently depending on what it is...

ozymandias_kok · Answer

The investors I know who are most interested in it either come from a non technical background and buy into unprovable but interesting sounding theses that rarely resonate with me as a practitioner, or are deeply technical and over anchor on their own experiences. Very rarely are either right.

z3t4 · Answer

There is a saying that in any gold rush, those who make the most money are those who provide the tools. But the real reason is that software for developers will either fail, or get really big, and economy of scale.Related post: https://news.ycombinator.com/item?id=36564994

vintagedave · Answer

There&rsquo;s lots of investment acquiring existing mature dev tools companies too.They definitely see something. It could just be a recurring revenue stream, but why that space? Lock-in?

kojeovo · Answer

VCs throw shit at the wall and hope it sticks

mejutoco · Answer

Because shovels, like other comments say below.Having said that I don't think Cognito/Auth0 is a dev tool. It is an authentication service. Otherwise hosting is a dev tool too. Still it matches the shovels argument, since many websites need authentication. Even a small percentage of that is a lot.

qwery · Answer

It's because VCS is a dev tool. The capital invests approximately randomly and there is a small boosting effect due to content recommendation algorithms (i.e. search engines) having a difficult time disambiguating between VCS and VCs. Someone might ask "Which VCS should I invest time in learning to use?" while another might ask "Where should VCS invest? I'm asking for a friend."Also, you'll be more likely to notice things happening in a field you're involved with.

reportgunner · Answer

They want to put AI in the tools.

Why do VCS see market opportunity in dev tools?

It makes sense to invest in the companies selling shovels in a gold rush. If the VCs are investing in developer tools, I guess it means they think the gold rush is still on.

The investors I know who are most interested in it either come from a non technical background and buy into unprovable but interesting sounding theses that rarely resonate with me as a practitioner, or are deeply technical and over anchor on their own experiences. Very rarely are either right.

There is a saying that in any gold rush, those who make the most money are those who provide the tools. But the real reason is that software for developers will either fail, or get really big, and economy of scale.
Related post: https://news.ycombinator.com/item?id=36564994

There’s lots of investment acquiring existing mature dev tools companies too.
They definitely see something. It could just be a recurring revenue stream, but why that space? Lock-in?

VCs throw shit at the wall and hope it sticks

Because shovels, like other comments say below.
Having said that I don't think Cognito/Auth0 is a dev tool. It is an authentication service. Otherwise hosting is a dev tool too. Still it matches the shovels argument, since many websites need authentication. Even a small percentage of that is a lot.

They want to put AI in the tools.