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 TechCrunch on the time. That deal didn’t occur, in keeping with a supply conversant in 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 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’ll really be massively money-losing companies. Vibe coders usually, and Windsurf particularly, can have such costly constructions that their gross margins are “very destructive,” one particular person acquainted near Windsurf instructed TechCrunch. That means it price extra to run the product than the startup may cost for it.
That is because of the excessive prices of utilizing giant language fashions, the particular person defined. AI coding assistants are significantly pressured to all the time supply the latest, most superior, and costliest LLMs as a result of mannequin makers are significantly fine-tuning their music 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 embrace firms that have already got big buyer bases like Anysphere Cursor and GitHub CoPilot.
Probably the most simple path to enhancing 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 for those who’re not going to be within the mannequin recreation,” 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 towards constructing its personal mannequin — an costly endeavor, the particular person stated.
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 may very well be undermined by the very firms that provided its AI, together with OpenAI and Anthropic, which have been additionally getting into the AI coding market.
A number of folks consider 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 destructive. They’re completely abysmal,” stated Nicholas Charriere, founding father of Mocha, a vibe coding startup and backend 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, seemingly 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 offers, together with, studies say, from OpenAI.
And Anysphere announced in January that it’s trying to construct its personal mannequin, which may give it extra management over its bills. In July, the startup hired two leaders from Anthropic’s Claude Code workforce, the Info reported, however two weeks later, these workers returned to work at Anthropic.
Along with constructing a mannequin, Anysphere may anticipate the price of LLMs to lower over time.
“That’s what everybody’s banking on,” stated Eric Nordlander, a common associate at Google Ventures. “The inference price in the present day, that’s the costliest it’s ever going to be.”
It’s not totally clear how true that’s. Somewhat than falling as anticipated, the cost of some of the latest AI models has risen, as they use extra time and computational sources to deal with difficult, multi-step duties.
When that can change stays to be seen. On Thursday, as an illustration, OpenAI introduced 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 immediately offered this mannequin as a selection for Cursor customers.
Anysphere has additionally lately modified its pricing construction to go alongside the elevated prices of working Anthropic’s music Claude mannequin, significantly to its most energetic customers. The transfer caught a few of Cursor customers by surprise, since they didn’t anticipate further costs on prime of its $20-per-month Professional plan. Anysphere CEO Michael Truell later apologized for unclear communication concerning the pricing change in a blog post.
That is the rock and the exhausting place. Though Cursor is likely one of the hottest AI functions, having reached $500 million in ARR in June, the corporate’s person base might not be 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 choice to get out could show to be comprehensible. After the OpenAI deal fell by, the founders and key workers left to hitch Google in a deal that led to a $2.4 billion payout to key shareholders. The remaining enterprise then sold itself to Cognition.
Whereas many, together with outstanding VCs, criticized Mohan for leaving roughly 200 workers with out roles at Google, a supply conversant in 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 technology like Replit, Lovable, Bolt and all of them depend on mannequin makers, as effectively.
Moreover, if this extraordinarily in style enterprise sector, already producing a whole lot of tens of millions in income or extra a yr, has problem constructing on prime of mannequin makers, what may it imply for different, extra nascent industries?