Weeks before the AI code development startup Cursor agreed to a potential $60 billion acquisition by SpaceX, the company had planned to raise billions of dollars in funding. However, its management team was repeatedly turned away during visits to top-tier investors. According to informed sources, firms like Iconiq had recently made significant investments in OpenAI and Anthropic. With the rapid growth of the latter's Claude Code product and Cursor's estimated $50 billion valuation, investors were reluctant to increase their exposure to a competitor in the same segment and questioned Cursor's competitive edge. One fund manager stated that the investment community currently harbors intense competitive anxiety regarding Anthropic.
Cursor's operational and fundraising challenges were key reasons behind its decision to partner with SpaceX, revealing private investors' cautious stance toward leading AI startups heavily reliant on technology from OpenAI and Anthropic. Sources indicated that for the fiscal quarter ending in January of this year, Cursor's gross margin was -23%, a rare figure for a high-revenue startup, although its margins have since turned positive.
Despite the initial fundraising setbacks, some investors remained optimistic about Cursor's growth potential and its reputation among developers. The company reportedly achieved $2.7 billion in annualized revenue last month, a 14-fold increase year-over-year, with some investors projecting it could exceed $7 billion by year-end. Ultimately, Cursor secured a new $2 billion funding round from investors including NVIDIA and existing shareholder Andreessen Horowitz. NVIDIA, as a major contributor, supplies AI server chips that provide computational power for Cursor, playing a critical role in the AI startup ecosystem.
However, Cursor halted this funding round after SpaceX expressed acquisition interest. If the deal proceeds, Cursor's investors stand to reap substantial returns—the company's valuation was under $3 billion early this year but had risen to $30 billion by the end of last year. As part of the acquisition, Cursor would gain access to SpaceX's server computational resources. Should SpaceX terminate the deal, it would be required to pay a $10 billion breakup fee. For Cursor, computational power is crucial; even if the previous funding had been secured, management had planned to raise additional billions before year-end specifically for computing infrastructure.
SpaceX's timing for acquiring Cursor is well-considered, as the company is preparing for a potential IPO in June with a valuation that could reach $1.5 trillion. Cursor's revenue is a key attraction: SpaceX allocated $12.7 billion in capital expenditures for xAI last year, while xAI generated only $3.2 billion in revenue, largely from social platform X. In contrast, Cursor reported $770 million in revenue last fiscal year, a nearly 24-fold increase from the previous year, approaching a quarter of xAI's annual revenue.
However, the acquisition could also exacerbate SpaceX's losses, as Cursor reported a net loss of nearly $900 million last fiscal year. Additionally, SpaceX has strategic motives: xAI's Grok has struggled to penetrate the enterprise market, an area where Cursor could provide a significant advantage. The two companies plan to collaborate on developing proprietary code models, helping Cursor reduce its dependence on Anthropic and OpenAI. Previously, Cursor's core services relied heavily on models from these two competitors, incurring substantial costs, which prompted the company to begin developing its own models, partly based on open-source frameworks to lower expenses and improve gross margins.
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