The AI software development market is a key battleground, with tools like Cursor and Claude Code experiencing explosive, consumption-driven ARR growth.
Myles Clements of Excel defends the firm's investment in Cursor, arguing that critics overlook its strategic shift from an IDE-centric tool to a multi-model AI agent platform with massive user engagement.
The investment thesis for Cursor is its potential to become the first platform company for the entire engineering vertical, a domain that has historically lacked a single dominant platform.
Modern venture capital strategy for high-valuation companies involves "laddering up" ownership across multiple rounds, as opposed to the traditional model of securing a large stake in an early round.
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Concerns Raised
The high cost and consumption-based pricing of AI tools like Cursor are causing customer churn and pushback.
Intense competition from well-funded players like Anthropic (Claude Code) threatens market share.
The firm has missed several significant investment opportunities, including Rippling, Deel, and ElevenLabs.
The durability of value for many AI applications remains unproven, posing a long-term risk.
Opportunities Identified
The potential to build the first definitive platform company for the entire engineering vertical.
AI tools are massively expanding the market by enabling new cohorts of developers and driving high consumption.
A multi-model strategy allows application-layer companies to become an 'index of AI innovation', benefiting from improvements in any underlying model.
The possibility for top private AI companies like Anthropic to achieve trillion-dollar valuations, creating unprecedented returns.