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Time of India
7 hours ago
- Business
- Time of India
AI 'vibe coding' startups burst onto scene with sky-high valuations
By Anna Tong, Krystal Hu NEW YORK: Two years after the launch of ChatGPT, return on investment in generative AI has been elusive, but one area stands out: software development. So-called code generation or "code-gen" startups are commanding sky-high valuations as corporate boardrooms look to use AI to aid, and sometimes to replace, expensive human software engineers. Cursor , a code generation startup based in San Francisco that can suggest and complete lines of code and write whole sections of code autonomously, raised $900 million at a $10 billion valuation in May from a who's who list of tech investors, including Thrive Capital, Andreessen Horowitz and Accel. Windsurf , a Mountain View-based startup behind the popular AI coding tool Codeium, attracted the attention of ChatGPT maker OpenAI, which is now in talks to acquire the company for $3 billion, sources familiar with the matter told Reuters. Its tool is known for translating plain English commands into code, sometimes called "vibe coding," which allows people with no knowledge of computer languages to write software. OpenAI and Windsurf declined to comment on the acquisition. "AI has automated all the repetitive, tedious work," said Scott Wu, CEO of code gen startup Cognition. "The software engineer's role has already changed dramatically. It's not about memorizing esoteric syntax anymore." Founders of code-gen startups and their investors believe they are in a land grab situation, with a shrinking window to gain a critical mass of users and establish their AI coding tool as the industry standard. But because most are built on AI foundation models developed elsewhere, such as OpenAI, Anthropic, or DeepSeek, their costs per query are also growing, and none are yet profitable. They're also at risk of being disrupted by Google , Microsoft and OpenAI, which all announced new code-gen products in May, and Anthropic is also working on one as well, two sources familiar with the matter told Reuters. The rapid growth of these startups is coming despite competing on big tech's home turf. Microsoft's GitHub Copilot, launched in 2021 and considered code-gen's dominant player, grew to over $500 million in revenue last year, according to a source familiar with the matter. Microsoft declined to comment on GitHub Copilot's revenue. On Microsoft's earnings call in April, the company said the product has over 15 million users. LEARN TO CODE? As AI revolutionizes the industry, many jobs - particularly entry-level coding positions that are more basic and involve repetition - may be eliminated. Signalfire, a VC firm that tracks tech hiring, found that new hires with less than a year of experience fell 24% in 2024, a drop it attributes to tasks once assigned to entry-level software engineers are now being fulfilled in part with AI. Google's CEO also said in April that "well over 30%" of Google's code is now AI-generated, and Amazon CEO Andy Jassy said last year the company had saved "the equivalent of 4,500 developer-years" by using AI. Google and Amazon declined to comment. In May, Microsoft CEO Satya Nadella said at a conference that approximately 20 to 30% of their code is now AI-generated. The same month, the company announced layoffs of 6,000 workers globally, with over 40% of those being software developers in Microsoft's home state, Washington. "We're focused on creating AI that empowers developers to be more productive, creative, and save time," a Microsoft spokesperson said. "This means some roles will change with the revolution of AI, but human intelligence remains at the center of the software development life cycle." MOUNTING LOSSES Some "vibe-coding" platforms already boast substantial annualized revenues. Cursor, with just 60 employees, went from zero to $100 million in recurring revenue by January 2025, less than two years since its launch. Windsurf, founded in 2021, launched its code generation product in November 2024 and is already bringing in $50 million in annualized revenue, according to a source familiar with the company. But both startups operate with negative gross margins, meaning they spend more than they make, according to four investor sources familiar with their operations. "The prices people are paying for coding assistants are going to get more expensive," Quinn Slack, CEO at coding startup Sourcegraph , told Reuters. To make the higher cost an easier pill to swallow for customers, Sourcegraph is now offering a drop-down menu to let users choose which models they want to work with, from open source models such as DeepSeek to the most advanced reasoning models from Anthropic and OpenAI so they can opt for cheaper models for basic questions. Both Cursor and Windsurf are led by recent MIT graduates in their twenties, and exemplify the gold rush era of the AI startup scene. "I haven't seen people working this hard since the first Internet boom," said Martin Casado, a general partner at Andreessen Horowitz, an investor in Anysphere, the company behind Cursor. What's less clear is whether the dozen or so code-gen companies will be able to hang on to their customers as big tech moves in. "In many cases, it's less about who's got the best technology -- it's about who is going to make the best use of that technology, and who's going to be able to sell their products better than others," said Scott Raney, managing director at Redpoint Ventures, whose firm invested in Sourcegraph and Poolside, a software development startup that's building its own AI foundation model. CUSTOM AI MODELS Most of the AI coding startups currently rely on the Claude AI model from Anthropic, which crossed $3 billion in annualized revenue in May in part due to fees paid by code-gen companies. But some startups are attempting to build their own models. In May, Windsurf announced its first in-house AI models that are optimized for software engineering in a bid to control the user experience. Cursor has also hired a team of researchers to pre-train its own large frontier-level models, which could enable the company to not have to pay foundation model companies so much money, according to two sources familiar with the matter. Startups looking to train their own AI coding models face an uphill battle as it could easily cost millions to buy or rent the computing capacity needed to train a large language model. Replit earlier dropped plans to train its own model. Poolside, which has raised more than $600 million to make a coding-specific model, has announced a partnership with Amazon Web Services and is testing with customers, but hasn't made any product generally available yet. Another code gen startup Magic Dev, which raised nearly $500 million since 2023, told investors a frontier-level coding model was coming in summer 2024 but hasn't yet launched a product. Poolside declined to comment. Magic Dev did not respond to a request for comment.
Yahoo
12 hours ago
- Business
- Yahoo
AI ‘vibe coding' startups burst onto scene with sky-high valuations
By Anna Tong, Krystal Hu NEW YORK, NY (Reuters) -Two years after the launch of ChatGPT, return on investment in generative AI has been elusive, but one area stands out: software development. So-called code generation or 'code-gen' startups are commanding sky-high valuations as corporate boardrooms look to use AI to aid, and sometimes to replace, expensive human software engineers. Cursor, a code generation startup based in San Francisco that can suggest and complete lines of code and write whole sections of code autonomously, raised $900 million at a $10 billion valuation in May from a who's who list of tech investors, including Thrive Capital, Andreessen Horowitz and Accel. Windsurf, a Mountain View-based startup behind the popular AI coding tool Codeium, attracted the attention of ChatGPT maker OpenAI, which is now in talks to acquire the company for $3 billion, sources familiar with the matter told Reuters. Its tool is known for translating plain English commands into code, sometimes called 'vibe coding,' which allows people with no knowledge of computer languages to write software. OpenAI and Windsurf declined to comment on the acquisition. 'AI has automated all the repetitive, tedious work,' said Scott Wu, CEO of code gen startup Cognition. 'The software engineer's role has already changed dramatically. It's not about memorizing esoteric syntax anymore.' Founders of code-gen startups and their investors believe they are in a land grab situation, with a shrinking window to gain a critical mass of users and establish their AI coding tool as the industry standard. But because most are built on AI foundation models developed elsewhere, such as OpenAI, Anthropic, or DeepSeek, their costs per query are also growing, and none are yet profitable. They're also at risk of being disrupted by Google, Microsoft and OpenAI, which all announced new code-gen products in May, and Anthropic is also working on one as well, two sources familiar with the matter told Reuters. The rapid growth of these startups is coming despite competing on big tech's home turf. Microsoft's GitHub Copilot, launched in 2021 and considered code-gen's dominant player, grew to over $500 million in revenue last year, according to a source familiar with the matter. Microsoft declined to comment on GitHub Copilot's revenue. On Microsoft's earnings call in April, the company said the product has over 15 million users. LEARN TO CODE? As AI revolutionizes the industry, many jobs - particularly entry-level coding positions that are more basic and involve repetition - may be eliminated. Signalfire, a VC firm that tracks tech hiring, found that new hires with less than a year of experience fell 24% in 2024, a drop it attributes to tasks once assigned to entry-level software engineers are now being fulfilled in part with AI. Google's CEO also said in April that 'well over 30%' of Google's code is now AI-generated, and Amazon CEO Andy Jassy said last year the company had saved 'the equivalent of 4,500 developer-years' by using AI. Google and Amazon declined to comment. In May, Microsoft CEO Satya Nadella said at a conference that approximately 20 to 30% of their code is now AI-generated. The same month, the company announced layoffs of 6,000 workers globally, with over 40% of those being software developers in Microsoft's home state, Washington. 'We're focused on creating AI that empowers developers to be more productive, creative, and save time,' a Microsoft spokesperson said. 'This means some roles will change with the revolution of AI, but human intelligence remains at the center of the software development life cycle.' MOUNTING LOSSES Some 'vibe-coding' platforms already boast substantial annualized revenues. Cursor, with just 60 employees, went from zero to $100 million in recurring revenue by January 2025, less than two years since its launch. Windsurf, founded in 2021, launched its code generation product in November 2024 and is already bringing in $50 million in annualized revenue, according to a source familiar with the company. But both startups operate with negative gross margins, meaning they spend more than they make, according to four investor sources familiar with their operations. 'The prices people are paying for coding assistants are going to get more expensive,' Quinn Slack, CEO at coding startup Sourcegraph, told Reuters. To make the higher cost an easier pill to swallow for customers, Sourcegraph is now offering a drop-down menu to let users choose which models they want to work with, from open source models such as DeepSeek to the most advanced reasoning models from Anthropic and OpenAI so they can opt for cheaper models for basic questions. Both Cursor and Windsurf are led by recent MIT graduates in their twenties, and exemplify the gold rush era of the AI startup scene. 'I haven't seen people working this hard since the first Internet boom,' said Martin Casado, a general partner at Andreessen Horowitz, an investor in Anysphere, the company behind Cursor. What's less clear is whether the dozen or so code-gen companies will be able to hang on to their customers as big tech moves in. 'In many cases, it's less about who's got the best technology -- it's about who is going to make the best use of that technology, and who's going to be able to sell their products better than others,' said Scott Raney, managing director at Redpoint Ventures, whose firm invested in Sourcegraph and Poolside, a software development startup that's building its own AI foundation model. CUSTOM AI MODELS Most of the AI coding startups currently rely on the Claude AI model from Anthropic, which crossed $3 billion in annualized revenue in May in part due to fees paid by code-gen companies. But some startups are attempting to build their own models. In May, Windsurf announced its first in-house AI models that are optimized for software engineering in a bid to control the user experience. Cursor has also hired a team of researchers to pre-train its own large frontier-level models, which could enable the company to not have to pay foundation model companies so much money, according to two sources familiar with the matter. Startups looking to train their own AI coding models face an uphill battle as it could easily cost millions to buy or rent the computing capacity needed to train a large language model. Replit earlier dropped plans to train its own model. Poolside, which has raised more than $600 million to make a coding-specific model, has announced a partnership with Amazon Web Services and is testing with customers, but hasn't made any product generally available yet. Another code gen startup Magic Dev, which raised nearly $500 million since 2023, told investors a frontier-level coding model was coming in summer 2024 but hasn't yet launched a product. Poolside declined to comment. Magic Dev did not respond to a request for comment. 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Yahoo
12 hours ago
- Business
- Yahoo
AI ‘vibe coding' startups burst onto scene with sky-high valuations
By Anna Tong, Krystal Hu NEW YORK, NY (Reuters) -Two years after the launch of ChatGPT, return on investment in generative AI has been elusive, but one area stands out: software development. So-called code generation or 'code-gen' startups are commanding sky-high valuations as corporate boardrooms look to use AI to aid, and sometimes to replace, expensive human software engineers. Cursor, a code generation startup based in San Francisco that can suggest and complete lines of code and write whole sections of code autonomously, raised $900 million at a $10 billion valuation in May from a who's who list of tech investors, including Thrive Capital, Andreessen Horowitz and Accel. Windsurf, a Mountain View-based startup behind the popular AI coding tool Codeium, attracted the attention of ChatGPT maker OpenAI, which is now in talks to acquire the company for $3 billion, sources familiar with the matter told Reuters. Its tool is known for translating plain English commands into code, sometimes called 'vibe coding,' which allows people with no knowledge of computer languages to write software. OpenAI and Windsurf declined to comment on the acquisition. 'AI has automated all the repetitive, tedious work,' said Scott Wu, CEO of code gen startup Cognition. 'The software engineer's role has already changed dramatically. It's not about memorizing esoteric syntax anymore.' Founders of code-gen startups and their investors believe they are in a land grab situation, with a shrinking window to gain a critical mass of users and establish their AI coding tool as the industry standard. But because most are built on AI foundation models developed elsewhere, such as OpenAI, Anthropic, or DeepSeek, their costs per query are also growing, and none are yet profitable. They're also at risk of being disrupted by Google, Microsoft and OpenAI, which all announced new code-gen products in May, and Anthropic is also working on one as well, two sources familiar with the matter told Reuters. The rapid growth of these startups is coming despite competing on big tech's home turf. Microsoft's GitHub Copilot, launched in 2021 and considered code-gen's dominant player, grew to over $500 million in revenue last year, according to a source familiar with the matter. Microsoft declined to comment on GitHub Copilot's revenue. On Microsoft's earnings call in April, the company said the product has over 15 million users. LEARN TO CODE? As AI revolutionizes the industry, many jobs - particularly entry-level coding positions that are more basic and involve repetition - may be eliminated. Signalfire, a VC firm that tracks tech hiring, found that new hires with less than a year of experience fell 24% in 2024, a drop it attributes to tasks once assigned to entry-level software engineers are now being fulfilled in part with AI. Google's CEO also said in April that 'well over 30%' of Google's code is now AI-generated, and Amazon CEO Andy Jassy said last year the company had saved 'the equivalent of 4,500 developer-years' by using AI. Google and Amazon declined to comment. In May, Microsoft CEO Satya Nadella said at a conference that approximately 20 to 30% of their code is now AI-generated. The same month, the company announced layoffs of 6,000 workers globally, with over 40% of those being software developers in Microsoft's home state, Washington. 'We're focused on creating AI that empowers developers to be more productive, creative, and save time,' a Microsoft spokesperson said. 'This means some roles will change with the revolution of AI, but human intelligence remains at the center of the software development life cycle.' MOUNTING LOSSES Some 'vibe-coding' platforms already boast substantial annualized revenues. Cursor, with just 60 employees, went from zero to $100 million in recurring revenue by January 2025, less than two years since its launch. Windsurf, founded in 2021, launched its code generation product in November 2024 and is already bringing in $50 million in annualized revenue, according to a source familiar with the company. But both startups operate with negative gross margins, meaning they spend more than they make, according to four investor sources familiar with their operations. 'The prices people are paying for coding assistants are going to get more expensive,' Quinn Slack, CEO at coding startup Sourcegraph, told Reuters. To make the higher cost an easier pill to swallow for customers, Sourcegraph is now offering a drop-down menu to let users choose which models they want to work with, from open source models such as DeepSeek to the most advanced reasoning models from Anthropic and OpenAI so they can opt for cheaper models for basic questions. Both Cursor and Windsurf are led by recent MIT graduates in their twenties, and exemplify the gold rush era of the AI startup scene. 'I haven't seen people working this hard since the first Internet boom,' said Martin Casado, a general partner at Andreessen Horowitz, an investor in Anysphere, the company behind Cursor. What's less clear is whether the dozen or so code-gen companies will be able to hang on to their customers as big tech moves in. 'In many cases, it's less about who's got the best technology -- it's about who is going to make the best use of that technology, and who's going to be able to sell their products better than others,' said Scott Raney, managing director at Redpoint Ventures, whose firm invested in Sourcegraph and Poolside, a software development startup that's building its own AI foundation model. CUSTOM AI MODELS Most of the AI coding startups currently rely on the Claude AI model from Anthropic, which crossed $3 billion in annualized revenue in May in part due to fees paid by code-gen companies. But some startups are attempting to build their own models. In May, Windsurf announced its first in-house AI models that are optimized for software engineering in a bid to control the user experience. Cursor has also hired a team of researchers to pre-train its own large frontier-level models, which could enable the company to not have to pay foundation model companies so much money, according to two sources familiar with the matter. Startups looking to train their own AI coding models face an uphill battle as it could easily cost millions to buy or rent the computing capacity needed to train a large language model. Replit earlier dropped plans to train its own model. Poolside, which has raised more than $600 million to make a coding-specific model, has announced a partnership with Amazon Web Services and is testing with customers, but hasn't made any product generally available yet. Another code gen startup Magic Dev, which raised nearly $500 million since 2023, told investors a frontier-level coding model was coming in summer 2024 but hasn't yet launched a product. Poolside declined to comment. Magic Dev did not respond to a request for comment. 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Yahoo
5 days ago
- Business
- Yahoo
Exclusive-Grammarly secures $1 billion from General Catalyst to build AI productivity platform
By Krystal Hu Grammarly has raised $1 billion in non-dilutive financing from General Catalyst to expand its artificial intelligence (AI) offerings, aiming to grow into a comprehensive productivity platform, the companies told Reuters. Grammarly, known for its popular writing assistant tool, plans to use the capital to fund sales and marketing costs and strategic acquisitions. It looks to use AI to build more communication-based productivity tools and even hosts third-party tools on its platform by leveraging access to its 40 million daily users. The investment, one of the biggest out of General Catalyst's Customer Value Fund (CVF), could help late-stage tech companies like Grammarly accelerate growth by using dedicated capital to acquire new customers. By reallocating funds typically tied up in sales and marketing, Grammarly can invest more in product development. In return, General Catalyst doesn't receive an equity stake in Grammarly, but will get a capped return linked to revenue generated through using this capital. This is structured as a percentage of the revenue generated from the fund being used in customer acquisition. Founded in 2005, Grammarly has an annual revenue exceeding $700 million and is profitable. In December, Grammarly appointed Shishir Mehrotra, previously CEO of the acquired productivity platform Coda, as its new leader, signaling a push into broader AI-powered workplace tools. "As Grammarly is going through a huge transformation of going from being a what is mostly known as a single-purpose agent to being an agent platform, it just felt very important for us to be able to bet big in our product development and in M&A as well as in our growth strategies," Mehrotra said in an interview. He added said the company has an eventual goal to go public, although no imminent plans. "I'm right now just focused on making sure we're innovating with new products, growing as fast as we can. But when we feel ready, we'll go public," Mehrotra added. The dedicated growth investment, if it pays off, could also benefit the valuation of Grammarly and General Catalyst's stake in the company, as it has also been an equity investor in Grammarly's series B funding in 2017. San Francisco-based Grammarly has raised over $550 million in venture capital, according to PitchBook. It was last valued at $13 billion in 2021. General Catalyst's Customer Value Fund operates by drawing capital from the firm's main investment fund, including a newly raised $8 billion. This approach is part of a strategic evolution for the investment firm, led by CEO Hemant Taneja, as it seeks to grow beyond the traditional venture capital model, including creating innovative funding mechanisms. Its customer acquisition fund has invested in nearly 50 companies, including Lemonade and Fivetran, as it leads on growth metrics to a more predictable path to returns. "Companies like Grammarly basically have a machine where they can invest dollars in sales and marketing and generate a very consistent return," said Pranav Singhvi, Managing Director at General Catalyst, "With this wave of AI, giving Grammarly the firepower to actually go and invest could land those customers beyond the 40 million."
Time of India
15-05-2025
- Business
- Time of India
Databricks continues M&A spree, will buy Neon for $1 billion in AI-agent push
By Jaspreet Singh and Krystal Hu Databricks said on Wednesday it would buy database startup Neon in its latest deal valued at about $1 billion, aiming to strengthen its analytics platform with technology that can help businesses develop and use artificial intelligence agents more easily. Demand for AI agents , programs that need little human intervention in executing routine tasks such as writing code or sending emails, has been growing as companies embrace the new technology to automate workflows and improve efficiency, creating demand for Neon's specific databases that are optimized for AI agents. Neon's cloud-based platform , based on the PostgreSQL open-source database - a system for organizing and managing information online - helps developers and AI agents store, access and manage data in real-time, making it easier to build and deploy AI-powered applications. Databricks, which is also an investor in Neon, sees the opportunity to own the newly built database as a way to attract more enterprises using its platform to build agents. The database market is due for a shakeup in the next few years, Databricks CEO Ali Ghodsi told Reuters. "The disruption will be with AI. We would love to own a chunk of that." Founded in 2021, Neon has partnered with platforms such as Vercel, Replit, Cloudflare, GitHub and Microsoft to integrate its serverless PostgreSQL offering into widely used developer tools and platforms. It has raised nearly $130 million from investors including General Catalyst and Notable Capital, according to PitchBook. Databricks said Neon's team is expected to join the data analytics company after the transaction closes. San Francisco, California-based Databricks, which secured a $62 billion valuation after raising a whopping $10 billion last year, offers a platform designed to help users ingest, analyze and build AI applications using complex data from various sources. One of the most highly valued private companies in the world, it competes with Snowflake and is widely seen as a public listing candidate. Databricks used its valuable private shares to acquire generative AI startup MosaicML in a $1.3-billion deal in 2023 and last year said it would buy data-management startup Tabular for more than $1 billion. More than 10,000 organizations, including Comcast, Block, Rivian and Shell, rely on the company's Databricks Data Intelligence Platform to manage and analyze data for AI applications, according to the company's website.
