In February, AI coding startup Windsurf was in talks to boost a giant new spherical at a $2.85 billion valuation led by Kleiner Perkins, at double the valuation it hit six months earlier, sources informed TechCrunch on the time. That deal didn’t occur, in line with a supply acquainted with the matter. As an alternative, information broke in April that the startup deliberate to promote itself to OpenAI for roughly the identical valuation: $3 billion.
Whereas that deal famously fell aside, one larger query stays: If the startup was rising that quick and attracting VC curiosity, why would it not promote in any respect?
Insiders inform TechCrunch that for all the recognition and hype round AI coding assistants, they will really be massively money-losing companies. Vibe coders typically, and Windsurf particularly, can have such costly constructions that their gross margins are “very detrimental,” one individual near Windsurf informed TechCrunch. That means it price extra to run the product than the startup may cost for it.
That is as a result of excessive prices of utilizing giant language fashions (LLMs), the individual defined. AI coding assistants are significantly pressured to all the time supply the newest, most superior, and costliest LLMs as a result of mannequin makers are significantly fine-tuning their newest fashions for enhancements in coding and associated duties like debugging.
It is a problem compounded by fierce competitors within the vibe-coding and code-assist market. Rivals embody firms that have already got large buyer bases like Anysphere’s Cursor and GitHub Copilot.
Essentially the most easy path to bettering margins on this enterprise entails the startups constructing their very own fashions, thereby eliminating prices of paying suppliers like Anthropic and OpenAI.
“It’s a really costly enterprise to run if you happen to’re not going to be within the mannequin sport,” mentioned the individual.
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However that concept comes with its personal dangers. Windsurf’s co-founder and CEO, Varun Mohan, in the end determined towards the corporate constructing its personal mannequin — an costly enterprise, the individual mentioned.
As well as, mannequin makers are already competing straight. Anthropic presents Claude Code and OpenAI presents Codex, as an illustration.
Promoting the enterprise was a strategic transfer to lock in a excessive return earlier than it could possibly be undermined by the very firms that provided its AI, together with OpenAI and Anthropic, which have been additionally coming into the AI coding market.
A number of individuals consider that the identical stress on margins Windsurf confronted could possibly be impacting Anysphere, the maker of Cursor, in addition to vibe coders like Lovable, Replit, and others.
“Margins on all the ‘code gen’ merchandise are both impartial or detrimental. They’re completely abysmal,” mentioned Nicholas Charriere, founding father of Mocha, a vibe-coding startup and back-end internet hosting answer serving small and medium companies (SMBs). He added that he believes the variable prices for all of the startups within the sector are very shut, doubtless inside 10% to fifteen% of each other.
Not like Windsurf, Anysphere has been rising so quick that it intends to stay an unbiased firm, having already turned down acquisition presents, together with, studies say, from OpenAI.
And Anysphere introduced in January that it’s trying to construct its personal mannequin, which may give it extra management over its bills. In July, the startup employed two leaders from Anthropic’s Claude Code crew, the Data reported, however two weeks later, these workers returned to work at Anthropic.
Along with constructing a mannequin, Anysphere may count on the price of LLMs to lower over time.
“That’s what everybody’s banking on,” mentioned Erik Nordlander, a basic associate at Google Ventures. “The inference price at the moment, that’s the costliest it’s ever going to be.”
It’s not fully clear how true that’s. Quite than falling as anticipated, the price of among the newest AI fashions has risen, as they use extra time and computational sources to deal with sophisticated, multistep duties.
When that may change stays to be seen. On Thursday, as an illustration, OpenAI launched a brand new flagship mannequin, GPT-5, with charges which can be considerably lower than its competitor, Anthropic’s Claude Opus 4.1. And Anysphere instantly supplied this mannequin as a alternative for Cursor customers.
Anysphere has additionally not too long ago modified its pricing construction to cross alongside the elevated prices of operating Anthropic’s newest Claude mannequin, significantly to its most lively customers. The transfer caught a few of Cursor prospects unexpectedly, since they didn’t count on further prices on prime of its $20-per-month Professional plan. Anysphere CEO Michael Truell later apologized for unclear communication in regards to the pricing change in a weblog put up.
That is the rock and the onerous place. Though Cursor is likely one of the hottest AI purposes, having reached $500 million in ARR in June, the corporate’s person base is probably not so loyal to the product if one other firm develops a software that’s superior to Cursor, buyers say.
Anysphere didn’t reply to a request for remark.
Given the aggressive panorama and the prices, Windsurf’s determination to get out might show to be comprehensible. After the OpenAI deal fell via, the founders and key workers left to affix Google in a deal that led to a $2.4 billion payout to key shareholders. The remaining enterprise then offered itself to Cognition.
Whereas many, together with outstanding VCs, criticized Mohan for leaving roughly 200 workers with out roles at Google, a supply acquainted with the deal insisted the acquisition really maximized the outcomes for all workers.
Past Cursor, different AI coding instruments are additionally among the many quickest rising startups of the LLM era, like Replit, Lovable, and Bolt, and all of them depend on mannequin makers as nicely.
Moreover, if this extraordinarily well-liked enterprise sector, already producing a whole lot of hundreds of thousands in income or extra a 12 months, has issue constructing on prime of mannequin makers, what would possibly it imply for different, extra nascent industries?