In February, AI coding startup Windsurf was in talks to lift an enormous new spherical at a $2.85 billion valuation led by Kleiner Perkins, at double the valuation it hit six months earlier, sources instructed iinfoai on the time. That deal didn’t occur, based on a supply acquainted with the matter. As a substitute, 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 greater query stays: If the startup was rising that quick and attracting VC curiosity, why would it not promote in any respect?
Insiders inform iinfoai that for all the recognition and hype round AI coding assistants, they will truly be massively money-losing companies. Vibe coders typically, and Windsurf specifically, can have such costly constructions that their gross margins are “very detrimental,” one individual near Windsurf instructed iinfoai. Which 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 massive language fashions (LLMs), the individual defined. AI coding assistants are notably pressured to at all times supply the latest, most superior, and costliest LLMs as a result of mannequin makers are notably 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 corporations that have already got big buyer bases like Anysphere’s Cursor and GitHub Copilot.
Essentially the most simple path to enhancing margins on this enterprise includes 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 when you’re not going to be within the mannequin recreation,” mentioned the individual.
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However that concept comes with its personal dangers. Windsurf’s co-founder and CEO, Varun Mohan, finally determined in opposition to the corporate constructing its personal mannequin — an costly enterprise, the individual mentioned.
As well as, mannequin makers are already competing instantly. Anthropic affords Claude Code and OpenAI affords Codex, as an example.
Promoting the enterprise was a strategic transfer to lock in a excessive return earlier than it may very well be undermined by the very corporations that provided its AI, together with OpenAI and Anthropic, which have been additionally getting into the AI coding market.
A number of folks imagine that the identical stress on margins Windsurf confronted may very well 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 resolution 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, probably inside 10% to fifteen% of each other.
Not like Windsurf, Anysphere has been rising so quick that it intends to stay an impartial firm, having already turned down acquisition affords, together with, reviews say, from OpenAI.
And Anysphere introduced in January that it’s making an attempt 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 Info reported, however two weeks later, these staff 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 normal accomplice at Google Ventures. “The inference price in the present day, that’s the most costly it’s ever going to be.”
It’s not completely clear how true that’s. Reasonably than falling as anticipated, the price of a number of the newest AI fashions has risen, as they use extra time and computational assets to deal with difficult, multistep duties.
When that may change stays to be seen. On Thursday, as an example, OpenAI launched a brand new flagship mannequin, GPT-5, with charges which are considerably lower than its competitor, Anthropic’s Claude Opus 4.1. And Anysphere instantly provided this mannequin as a selection for Cursor customers.
Anysphere has additionally lately modified its pricing construction to move alongside the elevated prices of working Anthropic’s newest Claude mannequin, notably to its most energetic customers. The transfer caught a few of Cursor clients unexpectedly, since they didn’t count on extra fees on high 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 arduous place. Though Cursor is without doubt one of the hottest AI purposes, having reached $500 million in ARR in June, the corporate’s person base will not be so loyal to the product if one other firm develops a software that’s superior to Cursor, traders say.
Anysphere didn’t reply to a request for remark.
Given the aggressive panorama and the prices, Windsurf’s resolution to get out might show to be comprehensible. After the OpenAI deal fell by way of, the founders and key staff left to affix Google in a deal that led to a $2.4 billion payout to key shareholders. The remaining enterprise then bought itself to Cognition.
Whereas many, together with outstanding VCs, criticized Mohan for leaving roughly 200 staff with out roles at Google, a supply acquainted with the deal insisted the acquisition truly maximized the outcomes for all staff.
Past Cursor, different AI coding instruments are additionally among the many quickest rising startups of the LLM technology, like Replit, Lovable, and Bolt, and all of them depend on mannequin makers as effectively.
Moreover, if this extraordinarily well-liked enterprise sector, already producing a whole bunch of tens of millions in income or extra a 12 months, has problem constructing on high of mannequin makers, what would possibly it imply for different, extra nascent industries?
