We don't need to compete with Anthropic and OpenAI on models right now. The interface between the human and the model is the key thing.
If you looked at the competitive landscape, it was almost silly.
I asked Michael, I was like, what do you think about Claude Code? And he said something to the extent, look, we are going after the biggest market in the world. You're always going to have formidable competitors. That does not scare us.
As founders, we all want to be ambitious and we want to push to the maximum point the Pareto frontier, but you have to kind of know what the curve is.
For us, the decision to invest in Cursor was actually pretty obvious. You remember Andrej Karpathy was using it. It was clearly a phenomenon. It was clearly like a known brand.
They went and got all the users in record time. Now they have the asset, the data, the know-how to build their own models. You really couldn't do the flip of that unless you started as a frontier lab. They were definitely a couple of oh moments, like remember when...
So to kick off, I actually wanted to take us back to early 2024. And you know, obviously you guys led the deal in, I think it was May of 2024 that year. But can you walk us through what was going on in the Q1, Q2 of that year and maybe how you guys started working with Cursor well before we ever partnered officially with them?
So, you have to sort of transport yourself back to late 2023, early 2024. I went back and looked it up. The leading models at the time were GPT-4o, Claude 3, and Llama 3.
That was actually pretty good.
That was great. Yeah, it was a great model. You know, change in strategy obviously now.
The leading coding harness was Copilot by like a mile, right? This was like the consensus thing. Microsoft was doing their Microsoft thing, right? They had Copilot, they had Office, you know, they had VS Code. All of these things combined, they were going to somehow win AI. And so it was clear that AI coding was sort of working, but it was a different universe compared to today, right? Like you had the sort of early signs that you could do meaningful work with AI, but agents didn't really exist. You know, loops didn't really exist. Reasoning didn't really exist at the time. So it's sort of a crazy time.
There was a continuum of like companies going after coding, right? So on one hand, you had those that like the only way to win coding is to build a base model and it has to be a coding-specific one. And on the other hand, you had, you know, very presciently by the way, companies just focused on agents, right? And like Cursor was somewhere in between.
And not only models, there were a million companies doing plugins too. And both of these were very reasonable things to do done by very smart people, right? Like that's what's so interesting about these new spaces. It's like smart entrepreneurs show up and do really interesting things. And in this case, model training was a very reasonable thing to do because the models weren't that good at coding yet. And there was sort of a theory that if we focus on this and do a coding-specific model, that's the breakthrough. People doing plugins on the other side were sort of saying, hey, let's not toss out the whole IDE, like that would be a crazy thing to do, but the interface between human and model is really important, so a plugin is a great place to go. You know, it just kind of turned out that the thing that Cursor was doing was the right thing to do, right? They, like us, were very bitter lesson pilled. You know, at the time they would have said, oh, there's no need for us to go train our own model. Of course that changed later for different reasons which we're going to get into later in this podcast, but it's like we don't need to compete with Anthropic and OpenAI on models right now. The interface between the human and the model is the key thing. And this is something that I remember Michael and Aravind saying like a lot, and saying just saying very clearly from the earliest days of Cursor, saying code in the future will look like pseudocode. Like I remember Michael making this point a lot. Like when you look at old, you know, like computer science papers, there's a section, it's like here's the algorithm, not in code but in like pseudocode, which you know, I'm sure many people, you know, are used to. And you know, we don't exactly write in pseudocode now, but probably you could, like probably you could just take the pseudocode, you know, block from an old paper and like the models now would implement that. This is like really what the Cursor guys thought from the very beginning. And they've proven to be exactly right about this, right? It's like this sort of natural language-ish specification, like pairing the programmer's intent down to the minimum possible spec. That's what really sort of matters now.
So anyway, so we were in this world, as Martin said, we, you know, we're talking to a ton of very smart, very interesting people working on coding in various ways. You know, the Cursor team kind of stood out because not only did they sort of align with the things that we thought about the world, more importantly, smarter people than us, you know, engineers working at the time the leading AI companies like OpenAI, Midjourney, Replicate, a bunch of others. You know, all kind of use this and subscribe to this model. And the team frankly just seemed kind of special, right? Like they had an unusual degree of focus. I remember we got Michael to come pitch our GP group. And 90% of the meeting was him saying no to things, which is just like for founders out there working on products that you love. Like VCs will always ask you kind of dumb questions about other things you might do or things you're related to or whatever. And Michael literally just sat there and like very politely listened to all the questions and said, hm, interesting. No, like we're not going to do that.
Wait, wait, actually on that point, can I ask you guys a question? Because I remember that meeting so vividly when you brought Michael in for the A. And one of the things that he said no to was actually, and you know, to your point on like there were a lot of plugins, right? And so there was this maybe more consensus thought that a VS Code fork versus the plugin into VS Code, one would be better for enterprise and it wasn't the former, it would be the latter. And I recall, I think it was you Martin or maybe it was both of you asking him, well, are you going to get enterprise customers with this medium? Right. And he looked at all of us in the eye with high conviction and you know, well, I'm going to turn it back to you and like what did you think of his answer and what gave you guys the conviction to take a pretty, I would say, a pretty contrarian bet at the time.
They actually had a very reasoned articulation for why where they were in the design space makes the most sense. So for example, why wouldn't you build a coding-specific foundation model? So what they said at the time was it turns out that you don't speak to these models in code. You speak to these as humans in natural language. Therefore the model has to like understand the breadth of human experience in language, right? And so you know that means in order to build a coding model you're actually building, you know, a frontier language model and that's just a very hard thing to do. And then of course you know there are other companies doing it and there are much more focused problems like tab-complete to do. So I think every one of their decisions was very reasoned in our opinion. They were also very product-focused, which you actually don't see a lot in AI. So they really believe that you can build a product, the product, you know, if it's really good will be adopted, which by the way is very similar to how Elon thinks. And that dictated a lot of their decisions. Like if you really believe in the product, you would never do a plugin because then you're part of somebody else's product. If you really believed in the product, you wouldn't do enterprise early, you'd do it later because the product itself is the kind of go-to-market motion. And so there was, I would say, and Matt let me know if you would agree, tremendous clarity on exactly what type of company they were and the decisions that they said or made all fell from that consistently, right? Where many of the companies we saw were kind of these pastiches of we'll try all of these different things, we're not quite sure what's going to work, you know, so their plugins and their services and their whatever, whatever, whatever. This was a product company going after what they considered to be a product problem.
Yeah. No, I think that's exactly right. And I think they had the ambition and the courage to kind of do the maximal form of what the product would look like, right? Like I think, you know, as founders, we all want to be ambitious, right? And we want to like push to the maximum point the Pareto frontier, but like you have to kind of know what the curve is. And they just kind of knew what the curve was, right? And didn't get distracted by the sort of non-product things. I remember when we were trying to convince the Cursor team to let us invest in their company, I asked Michael once what he did for fun like outside of work. And I was like, he didn't understand the question. He's like, what do you mean? Like I'm like, when you're not in the office, he's like, what do you mean? You know.
I also remember by the way when we had the lunch after we did the investment and you know I was talking about something about like internet days that were similar. He was like, I was five. And we're like... But like I mean what's amazing about not just Michael but all the founders is like even though they were pretty young when a lot of these things happened like they actually were kind of students of all this history which is a trait that we see, Alex Rampell talks about this a lot. We see this across all of our top founders that they're like able to study and really learn from what's kind of happened before.
I'm going to turn the question back on you. I think Matt would agree for us the decision to invest in Cursor was actually pretty obvious. The team was phenomenal. It was incredibly focused. All of us were users. Like we, you know, like half the team actually used Cursor. You remember Andrej Karpathy was using it. It was clearly a phenomenon. It was clearly like a known brand. The growth was asymptotic. So from an early stage investor it's a pretty straightforward decision. It was a much less obvious decision for a growth investor. And so like I think probably what you heard in that first meeting maybe was a little bit dissonant with how you'd growth invest but then you very very quickly led the next round. So maybe talk through how you kind of like got past the typical growth evaluation and got conviction.
Yeah, I mean I think the timelines are so compressed here. It's crazy to think back on because I remember you guys led the A in May, June, right? Early summer and by October we had done, we did the B and so it was clearly just vertical liftoff. And there were a couple things that summer, right? You guys talked about Andrej Karpathy tweeting about them but they went on Lex, incredibly thoughtful discussion of how they thought about their vision for like coding going forward. And so I think it comes back to Martin, something you said, which is they were just reimagining everything, right? And you know, you just talked about this as well Matt. But you can't write growth memos that way. Like never mind you. So you know, you got the bug, you know, because you were calling us and we were so... How did you convince David George? Like don't you have to show like you know... Yeah. You know it's so funny because and I think you had to think out of the box for this one. I mean, of course, the momentum was vertical, but there were so many things that they defied conventional thinking where I remember the first time, you know, Martin, you introduced me to Michael, we got a coffee that day, you know, as Michael, you know, they move quickly. So I pulled some stuff together for them, right? Because we're, you know, we're trying to show them, hey, this is the next stage of what growth looks like. And there's so many conventional pieces of conventional wisdom that they just completely broke. Like we would say, hey, we'll help you find a sales leader because, you know, previously it made sense to start layering a sales leader at 25 to 50 million of ARR when self-serve starts to peter out. Michael looks me dead in the eye and it's like self-serve is not petering out, right? And so then you start to pull these drivers that you're like, oh, these assumptions that would go into any growth model historically, you can't have that asymptoting at 25% growth in five years, right? And so I think a lot of the growth investment decision at the time was throwing out some of the assumptions that we would typically make on how a company would, you know, eventually start to slow growth. I'm very glad that we did that. And then the second piece is we should talk about the competitive landscape, right? Because you mentioned Copilot.
I was actually going to say and actually I think Matt deserves a ton of credit here which is we talk about now in retrospect how it was a pretty easy decision on the Series A but you know Matt led the early deal and he saw something a lot of people didn't which was this, which is if you looked at the competitive landscape it was almost silly, which is you had a large incumbent which is Microsoft that had a company at scale that had the open weights and they own VS Code so everything, you know, everything would say that there's just no way that you could survive relative to this one single competitor. We'll talk about the other ones later. And I think that also was one thing you said about Michael was what I witnessed. It'd be great to hear Matt, which and I even remember when Matt said this early on, he was like, you know, they have a good answer for everything, which when you have founders that are students of what they do, they're very consistent in their answers. And you know, and this is not, listen, I think when we did the deal, it was pretty obvious, but it wasn't so obvious six months before. You know, and Matt and the team had that deep conviction way back then. And I think for every one of these races there are mirrors of that. Anyways, is this...
Yeah, totally. And look, I mean, people think venture capital is like an individual sport. Like it's not at all. I mean, our whole team was working on this at the time. You know, I think it was over a year. We literally had a Cursor team on our team, like within our team. Ro was great, you know, you led the team. I mean, it was... So, but yeah, no, you're exactly right. I mean, these guys are crazy smart, right? They're like off the charts sort of just raw intelligence.
Yeah. They're able to do this thing we talk about a lot like context switch between tech and markets really seamlessly and they ingest data, right? Whether it's historical data or like things happening in the market and act very very quickly which you said before Sarah. But specifically...
