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 informed TechCrunch on the time. That deal didn’t occur, in keeping 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 wouldn’t it 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 usually, and Windsurf specifically, can have such costly buildings that their gross margins are “very destructive,” one particular person near Windsurf informed TechCrunch. Which means it value extra to run the product than the startup might cost for it.
That is because of the excessive prices of utilizing massive language fashions (LLMs), the particular person defined. AI coding assistants are notably pressured to all the time supply the newest, 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.
This can be a problem compounded by fierce competitors within the vibe-coding and code-assist market. Rivals embrace firms that have already got large buyer bases like Anysphere’s Cursor and GitHub Copilot.
Essentially the most simple 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 when you’re not going to be within the mannequin sport,” stated the particular person.
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However that concept comes with its personal dangers. Windsurf’s co-founder and CEO, Varun Mohan, in the end determined in opposition to the corporate constructing its personal mannequin — an costly enterprise, the particular person stated.
As well as, mannequin makers are already competing instantly. Anthropic provides Claude Code and OpenAI provides 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 equipped 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 strain 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 the entire ‘code gen’ merchandise are both impartial or destructive. They’re completely abysmal,” stated 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, possible 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 provides, together with, studies say, from OpenAI.
And Anysphere introduced in January that it’s trying to construct its personal mannequin, which might 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 might anticipate the price of LLMs to lower over time.
“That’s what everybody’s banking on,” stated Erik Nordlander, a basic associate at Google Ventures. “The inference value right this moment, that’s the costliest it’s ever going to be.”
It’s not solely clear how true that’s. Quite than falling as anticipated, the price of a few of the newest AI fashions has risen, as they use extra time and computational assets 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 are 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 lately modified its pricing construction to cross alongside the elevated prices of operating Anthropic’s newest Claude mannequin, notably to its most energetic customers. The transfer caught a few of Cursor prospects abruptly, since they didn’t anticipate further fees on high of its $20-per-month Professional plan. Anysphere CEO Michael Truell later apologized for unclear communication concerning the pricing change in a weblog submit.
That is the rock and the laborious place. Though Cursor is likely one of the hottest AI purposes, having reached $500 million in ARR in June, the corporate’s consumer base might not be so loyal to the product if one other firm develops a device 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 via, the founders and key staff left to hitch 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 staff with out roles at Google, a supply acquainted with the deal insisted the acquisition really 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 in style enterprise sector, already producing lots of of tens of millions in income or extra a 12 months, has problem constructing on high of mannequin makers, what may it imply for different, extra nascent industries?
