Anysphere, maker of AI code editor Cursor, is in talks with investors for a funding round that could value the company at US$18 billion to US$20 billion.

These discussions follow Anysphere’s recent US$900 million funding round earlier this month, which valued the startup at US$9.9 billion.

That round was led by Thrive Capital, with participation from Andreessen Horowitz, Accel, and DST Global.

The company has not confirmed if it will seek additional funding, stating it does not require immediate cash.

Launched in 2023, Anysphere has seen rapid growth, with Cursor generating over US$500 million in annualized revenue.

Cursor is used by OpenAI, Spotify, Instacart, and others to improve coding productivity through real-time code suggestions.

Despite its growth, Anysphere faces competition from GitHub Copilot, Amazon CodeWhisperer, and Windsurf, which OpenAI may acquire for US$3 billion.

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🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ AI code tool startups experiencing unprecedented valuation growth amid market boom

Anysphere’s potential $18-20 billion valuation represents an extraordinary growth trajectory that aligns with broader AI code tool market expansion forecasts.

The overall AI code tools market is projected to grow from $4.3 billion in 2023 to $12.6 billion by 2028 at a 24.0% CAGR, with some estimates suggesting it could reach $30.1 billion by 2032 1.

This valuation surge reflects a broader pattern where AI startups command premium valuations, typically 60% higher at Series B funding stages compared to non-AI counterparts 2.

Anysphere’s rapid ascent parallels the increasing share of AI startups achieving unicorn status, which has grown from just 5% in 2015 to approximately 35% in 2024 3.

The generative AI segment has been particularly attractive to investors, accounting for nearly 50% of total AI funding in 2023, a dramatic increase from just 8% in 2022 4.

While Anysphere’s $500 million annualized revenue appears impressive, investors appear to be pricing in substantial future growth potential rather than current financials, evidenced by the 40x revenue multiple implied by a $20 billion valuation.

2️⃣ Code tools represent a high-stakes battleground for tech giants and startups alike

Anysphere’s Cursor is competing in an increasingly crowded market where established tech companies and well-funded startups are fighting for dominance in AI-powered coding tools.

North America currently dominates the AI code tools market, with major players including Microsoft (GitHub Copilot), Amazon (CodeWhisperer), Google, and IBM all investing heavily in this space 51.

The competitive intensity is evident in OpenAI’s reported $3 billion acquisition of Windsurf, reflecting the strategic importance these tools hold for companies building broader AI platforms and ecosystems [original article].

Software development represents the largest application segment in the AI code tools market, driving significant investment as these tools promise to transform programming productivity 16.

This competition is playing out against projected market growth from $4.85 billion in 2023 to $26.03 billion by 2030, creating both opportunities and challenges for startups like Anysphere that must maintain their technological edge 5.

Enterprise adoption is proving to be a crucial battleground, with Anysphere claiming more than half of Fortune 500 companies now use Cursor, highlighting how enterprise contracts are becoming the primary growth driver in this market [original article].

3️⃣ Historical VC patterns suggest caution amid extraordinary growth claims

Anysphere’s claim of being “the fastest-growing startup of all time in terms of revenue” should be viewed within the historical context of venture capital’s tendency toward hyperbole during technology booms.

Previous technology funding cycles have demonstrated similar patterns of investor enthusiasm, such as when VC funding levels in 2014 reached $12.97 billion (the highest since Q1 2001), raising concerns about potential market bubbles 7.

The evolution of investor expectations is noteworthy. While 15% of Series A companies generated revenue in 2010, today 82% do, indicating a shift toward greater commercial validation before significant funding 8.

Median Series A round sizes grew 2.7 times larger between 2012 and 2018, reflecting how funding stages have evolved to accommodate longer private market development cycles for startups 8.

Despite the enthusiasm, historical data shows approximately 90% of AI startups fail within their first few years, primarily due to cash flow issues or acquisition by larger competitors 9.

Anysphere’s significant funding ($900 million) provides substantial runway, but the company faces the challenge of maintaining its rapid growth trajectory in a market where competitors have deep pockets and established customer relationships.

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