In February, AI coding startup Windsurf was in talks to lift a giant new spherical at a $2.85 billion valuation led by Kleiner Perkins, at double the valuation it hit six months earlier, sources advised Trendster on the time. That deal didn’t occur, in keeping with a supply accustomed to 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 Trendster that for all the recognition and hype round AI coding assistants, they’ll truly be massively money-losing companies. Vibe coders usually, and Windsurf particularly, can have such costly buildings that their gross margins are “very destructive,” one individual near Windsurf advised Trendster. That means it value extra to run the product than the startup may cost for it.
That is because of the excessive prices of utilizing giant language fashions (LLMs), the individual defined. AI coding assistants are significantly pressured to all the time supply the latest, most superior, and most costly LLMs as a result of mannequin makers are significantly 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 corporations that have already got big buyer bases like Anysphere’s Cursor and GitHub Copilot.
Essentially the most easy 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 in case you’re not going to be within the mannequin recreation,” stated the individual.
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However that concept comes with its personal dangers. Windsurf’s co-founder and CEO, Varun Mohan, finally determined towards the corporate constructing its personal mannequin — an costly endeavor, the individual stated.
As well as, mannequin makers are already competing immediately. Anthropic provides Claude Code and OpenAI provides Codex, as an example.
Promoting the enterprise was a strategic transfer to lock in a excessive return earlier than it might 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 individuals imagine that the identical stress on margins Windsurf confronted might 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 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, 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 provides, together with, stories 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 Info reported, however two weeks later, these staff 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 Erik Nordlander, a normal associate at Google Ventures. “The inference value right now, that’s the costliest it’s ever going to be.”
It’s not completely clear how true that’s. Slightly than falling as anticipated, the price of a few of the newest AI fashions has risen, as they use extra time and computational sources to deal with sophisticated, multistep duties.
When that can change stays to be seen. On Thursday, as an example, OpenAI launched a brand new flagship mannequin, GPT-5, with charges which might 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 lately modified its pricing construction to go alongside the elevated prices of working Anthropic’s newest Claude mannequin, significantly to its most lively customers. The transfer caught a few of Cursor clients without warning, since they didn’t anticipate extra expenses 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 onerous place. Though Cursor is without doubt one of the hottest AI purposes, having reached $500 million in ARR in June, the corporate’s consumer base will not be so loyal to the product if one other firm develops a device 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 resolution to get out might show to be comprehensible. After the OpenAI deal fell by way of, 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 bought itself to Cognition.
Whereas many, together with distinguished VCs, criticized Mohan for leaving roughly 200 staff with out roles at Google, a supply accustomed to 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 era, like Replit, Lovable, and Bolt, and all of them depend on mannequin makers as properly.
Moreover, if this extraordinarily widespread 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?
