AI startups revolutionise coding industry, leading to sky-high valuations

Founders of code-gen startups and their investors believe they are in a land grab situation.

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.