The Last Investment Memo You'll Ever Read on Cursor AI
The most detailed, concise, and thoughtful memo you'll ever read on Cursor.
Anysphere Inc. (Cursor AI)
Executive Summary
Anysphere Inc., operates under the product brand Cursor AI. The company has emerged as a category-defining leader in AI-powered developer tooling. The company achieved $100m ARR slightly 2 years after launching.
Anysphere has attracted strong investor attention. The company raised a $105 million Series B in Jan 2025 at a $2.5b valuation, led by Thrive Capital and Andreessen Horowitz (a16z)
Thesis
AI assisted development inevitably becomes a mission critical stack as
Clear productivity gains are achieved with AI
Development workloads become more complex
Strong product market fit with SMBs, individual developers, with potential to take share from #1 player Github Copilot in Enterprise
Risks
Foundational LLM companies (OpenAI, Anthropic, Deepseek) building other development specific solutions that are free and “good enough”
Price competition from other competitors like Windsurf
Business model
Cursor AI offers an AI-powered integrated development environment (IDE) designed to enhance developer productivity.
The company serves individual developers, start-ups, SMBs, and enterprise teams, offering a freemium model with tiered subscriptions.
Cursor’s key value proposition is in integrating advanced AI features into the coding environment, allowing developers to write code more efficiently using natural language instructions and intelligent autocompletion.
Founders’ Philosophy
Cursor AI was founded in 2022 by four MIT graduates: Michael Truell (CEO), Sualeh Asif (Chief Product Officer), Arvid Lunnemark, and Aman Sanger. The founders believed that AI should fundamentally rewire developer workflows rather than serve as a peripheral tool.
Product philosophy
The team focuses on rapid iteration on their feature set, where each version of Cursor will "feel obsolete within a year" Cursor’s feature set is built to Allow programmers to focus on high-value design work and write lines of code at quicker speed.
The team went with the approach of building an editor rather than a plugin (like Tabnine) in order to have full control of the AI-enabled experience, and not be locked in by those limitations. By forking its product from VS Code and retaining VS Code compatibility, switching to Cursor becomes frictionless.
Go-to-market
By making product adoption frictionless, and constantly seeking to delight its users, developers become evangelists for the product, allowing them to rapidly scale their user base rapidly through word-of-mouth. A significant portion of Cursor’s growth is driven by product-led growth and word-of-mouth.
Market Growth And Adoption Trends
Growth Tailwinds
Clear productivity benefits driving organic adoption:
Code assistance / generation has proven to be the dominant use case for LLM, accounting for 10% of all Claude’s conversations. AI-assisted developer tools have clear productivity benefits, and will gradually become a mission-critical tool in developers’ tool chain. Productivity benefits will continue to increase as LLMs improve their reasoning scores.
Low barrier to adoption:
Enabling AI-assistance in development has been made easy with (1) zero additional hardware requirements and (2) easy integration into the current tool chain. This drives rapid adoption curve faster than the internet or mobile phones
Increased AI investment by enterprises:
78% of organizations surveyed by Gartner in 2023 intend to boost their spending in AI-powered development tools during the following two years. It is expected that by 2025, 70% of new enterprise applications will be developed using low-code or no-code platforms incorporating AI capabilities.
Size of Prize
Global SWE pool: There are 29 million software engineers (SWEs) globally in 2024, growing 4% each year from 2020. With AI lowering the barriers to entry for development, we can expect global SWEs to reach over 40 million by 2030.
Invdotai estimates
AI-assisted coding adoption
~60% of developers already using AI in their development process, up 40% in 2023. This shows strong traction in AI usage particularly given the clear productivity benefits.
Source: Stackoverflow Developer Survey 2024
The incremental infrastructure for widespread AI adoption is low compared to historical groundbreaking technologies like cellphones and the Internet. As such, we can expect a significantly quicker adoption curve.
Source: New York Times, Stratechi
While AI adoption is widespread, AI adoption has significantly more room to grow. Current usage of AI lacks depth, as there is still a lack of trust on AI-assisted outputs, particularly with complex tasks.
Only 3% of users view current AI tools as capable in handling complex development workflows.
Usage will deepen as reasoning models become increasingly proficient. Less than 3M developers today (<10% penetration) are paid users of AI-assisted tools like Github Copilot, or Cursor.
Source: Invdotai estimates
Competitive Landscape
Github copilot is the dominant player for AI-assisted development, with an estimated share of 80% of all paid users in 2024. Cursor ranks #2, with ~360K paid users (~18% market share). Other players include Replit, Codeium (Windsurf), and Tabnine.
Invdotai estimates
Github Copilot
Github Copilot has 1.3M paid users as of Feb 2024. Part of Copilot’s success today comes from its first-mover advantage, with its beta launch in October 2021.
Copilot also benefits from its integration with Github’s core offering. Github’s core product serves as a code management tool, and is the dominant code management platform used by developers today (~90% share).
Copilot has an unparalleled advantage in acquiring enterprise customers under the Github and Microsoft brand:
Enterprises already invested in GitHub for version control and CI/CD face minimal switching costs when adopting Copilot, as it embeds natively into existing workflows.
Microsoft’s ability to bundle Copilot with GitHub Enterprise licenses, as well as other Microsoft products (e.g., Azure, Office 365) makes the platform well positioned to to acquire enterprise customers
Perhaps the most critical aspect of Copilot’s moat with enterprises lies in addressing enterprises’ governance concerns. Microsoft’s established enterprise sales channels and SLAs further reassure procurement teams, making Copilot a “safer” choice for large enterprises, a key factor in enterprises’ decision making process.
GitHub Copilot relies mainly on OpenAI's models. This limits its range and flexibility. Unlike some competitors, Copilot cannot tap into other AI systems like Claude or open-source models. This single-source approach means users can't benefit from the unique strengths of different AI engines for their coding tasks.
Windsurf
Windsurf is Cursor’s core competitor in acquiring non-enterprise users, with approximately half the number of paid users than Cursor. Similar to Cursor, Windsurf offers an alternative IDE platform rather than a plugin.
The two platforms are often compared side-by-side, and users who adopt Windsurf cite pricing as their key decision factor. Windsurf initially offered their Pro plan at $10 / month, and subsequently received backlash when the company increased their Pro pricing to $15 / month.
While the company continues to offer $10 / month pricing to its early adopters, the increase in price showed how Windsurf was not able to sustain its pricing advantage. With a now narrower price gap to Cursor’s pro plan of $20 / month, acquiring the next cohort of adopters would be more challenging.
Foundational Models (e.g., Claude)
AI-enabled IDEs face growing competition from foundational LLM companies building coding-specific tools. Anthropic released Claude 3.7 Sonnet, which has a “Claude Code” command line tool. This tool lets developers delegate coding tasks directly from their terminal, and lets users bypass traditional IDEs for coding workflows.
While Claude Code offers powerful coding capabilities, it's unlikely to fully replace IDEs. Developers still need the ability to edit or debug the codebase directly.
Cursor
Cursor’s advantage lies in its (1) speed to market with new features, and (2) an organically grown user base that is loyal and serves as strong advocates for the platform.
Cursor’s speed to market in new features and feature improvements is unparalleled. In less than 12 months, Cursor has improved its Tab feature (multi-line code autocomplete) to allow for longer code-line suggestions, greater accuracy, with lower server latency.
Source: Cursor Blog
Cursor’s features like Rules for AI and integration of Model Context Protocols open a wide set of possibilities for developers to optimize their development workflows. As a result, we see multiple content creators sharing their best practices for using Cursor, as well as users sharing well crafted system prompts on websites like .CursorRules.
~20% of developers work in enterprises (>1000 FTEs), while a significant majority of developers work as small to mid-sized teams. This means that Cursor has a large runway for growth acquiring paid users without facing lengthy sales cycles often faced by enterprise software providers.
Nonetheless, Cursor’s could also start to get inroad with enterprise customers as it continues to establish itself with scale. Cursor is SOC 2 Type II certified, and conducts third-party penetration tests annually. The company has strong infrastructure security measures, which they continue to develop over time. Note that cursor has already made inroads with large enterprise customers such as OpenAI and Stripe.
ARR Forecasts
Our forecast expects Cursor to grow ARR at a 60% CAGR, reaching $4 billion ARR by 2030. Cursor is well positioned to dominate the space, with a strong path to achieving 40% of overall market share against other AI-enabled IDEs.
Key levers of growth include:
Acceleration in the number of developers as barriers for coding come down with AI assisted tools.
Increasing adoption and usage of AI in development workflows. Only 60% of developers use AI in their development workflows today.
Deeper usage of AI in workflows driving paid user adoption.
If you would like to explore our financial model in depth, please reach out to me!