Ten years ago, when SD Times launched, there was a robust market for software development tools. Tools were sold by big companies and small companies, and startups flourished.
But today, investors have a tough time finding reason to put their money in software development tool companies. While there are certainly development tool companies that have recently found money, the market as a whole is now considered to be a tough nut to crack by venture capitalists, and in many cases, not worth the effort or risk.
”We don’t have anyone focused on software development tools, which I guess says something in itself,” said David Weiden, partner at Khosla Ventures. Meanwhile, other firms, such as Crosslink Capital, have said that they don’t even look at development tool companies anymore.
That’s not to say there’s no money to be made in tools, just that the business model there is a tough one. Ping Li, partner at Accel Partners, said that “given the prevalence of open-source tools out there, it’s increasingly hard to make money there.”
Li’s venture capital firm recently invested in Atlassian, the makers of Confluence and JIRA. While Atlassian is a purely development tool-focused company, even Li admits that it’s the exception to the rule. He said Atlassian was an appealing investment because the company makes products that can be used across projects and development organizations, and throughout entire development life cycles, rather than one-off solutions for single needs.
“You can’t be a point product. You have to be more of a platform,” said Li. “You have to be more integrated into the development life cycle, as opposed to a point tool.”
Michael Fitzgerald, founder and managing general partner of Commonwealth Capital Ventures, said that there is still interesting work to be done in development tools, but he said the overall tools market has not historically been a winner for investors.
“I think there’s still innovation in developer tools,” said Fitzgerald. “We’ve never been high on investing in the software development space. The tools space has never really produced significant winners in the last 15 or so years.
“Still, there’s an awful lot of new technology that comes down the pipe. The requirements to make money are too daunting. It’s very fragmented. You never get the run in that space that you might like. It’s a very dynamic space.”
And there’s another major factor, said Li. “Developer tools is a tough business because developers don’t like paying for things.”