Happy Wednesday. It’s officially the season of sweating when you simply step outside. Great news for me is I am playing golf Saturday and walking 18 holes on a hilly course. 

Also Circle (a stablecoin company) IPO’d last Wednesday and it’s up 271% and trading at 146x current earnings. Either the market is realllyyyyy supportive of stablecoins companies or… honestly I don’t really know, I just know that a company with dynamics like this shouldn’t be priced at 146x earnings.

If you missed what the 250/60/4 segment is, check out the original issue here.

$250 million

Company: Cursor

Description (from Perplexity): Cursor is an AI-powered integrated development environment (IDE) created by Anysphere, a San Francisco-based startup founded in 2022 by four MIT graduates. Cursor is designed to enhance developer productivity by leveraging generative AI for code completion, debugging, and code generation, directly integrating with Visual Studio Code and supporting natural language commands. The product has rapidly become a favorite among individual developers and major tech companies, including Stripe, OpenAI, Spotify, NVIDIA, Uber, and Adobe. 

Background 

I keep trying to find companies that are under the radar and write an investment memo around them before their next big raise, but ⅔ times now a company has raised a massive round right before I write about them. Last week Cursor announced a Series C raising $900m at a $9.9b valuation. 

The past few years I have spent my time in startups building software products. Since I was never an engineer, I always had the product manager role, I told engineers what to build and why.

Last week, I finished building an entire investment research platform with Cursor. I had some help from a technical friend, but using Cursor, I wrote over 6,000+ lines of code. Now of course there were mistakes and sometimes I wanted to punch my monitor, but the ability to build at this speed for someone with little knowledge of coding, felt like magic. It was a JDCE (jaw dropping consumer experience).  

Investment Thesis

When Cursor announced their Series C, they also announced that they are at a $500m ARR. This compares to just $100m in December 2024. I laughed out loud when I put the word “just” in front of $100m, but when you 5x your revenue in less than 7 months that feels justified.

While the revenue side is beyond impressive, even historical, my thesis and reason for investment is due to the potential TAM that Cursor has. While a $10b valuation is about a 20x multiple on current sales, this company can easily surpass $100b in the next few years.

Numbers → TAM

Let’s rewind to 2014. Uber is taking off and was valued at $17b when an NYU professor makes an argument that Uber is not nearly worth $17b, but rather $5.9b. Series A investor and board member Bill Gurley went on to write a post that this analysis completely misses the mark. The NYU professor came to his valuation by measuring Uber against the current taxi and limousine market. Uber was more than this. Not only did Gurley provide an argument for why Uber is worlds better than traditional taxis, but he also argued the case where Uber replaced car ownership and rental cars, dramatically increasing the TAM. As we know now, Bill was right. 

I believe that Cursor is in a similar spot. The TAM isn’t just engineers and engineering teams around the world, the TAM expands to people who are tech savvy but previously had little knowledge of how to code. I asked Perplexity to gather the total numbers of engineers in the US and EU, then slap a generous 50% onto that number. This new number represents Cursor’s potential TAM. Not only the engineers, but the new customers that Cursor enables with their technology.

This chart below just shows these numbers for the US and EU. Why not the world? Because I found those numbers not as reliable, but we can get a pretty good idea of TAM just by looking at the US and EU. Cursor currently has 360,000 users. Based on this chart this means they have only attained 3.08% of their TAM in the US and EU based on my assumptions. 

I know, very generous assumptions by yours truly, but it’s my model and I get to build the assumptions. 

The Product

The numbers I generated above assume that we increase our TAM by 50% beyond engineers just because of how the product makes it easier for non-engineers to code. Based on my experience using Cursor, this is my assessment for who could built what applications 12 months ago, vs now. 

(Side note, using ChatGPT to build charts based on drawings is so sick). 12 months ago, non-engineers couldn’t build an MVP, now they can build a simple app using services like Replit, Lovable, or Bolt. Tech savvy people can now build complex user applications with little coding knowledge. 

Not only can people build like never before, but they can build faster. A feature that used to take 3 months to build, now can only take 1 month. Companies and teams can build faster and better than they ever have before. This now becomes a tool that is hard to give up. Technology that enables you this much, and that adds this much efficiency, is very hard to churn. 

This is the part of investing I like to dive head first into; the product. I use Cursor weekly and have friends who are building companies with it. Every person I know who uses it has the same magical experience. On this note, a little product feedback would be to make a Cursor lite. The issue my friends have is that there is a big step to get acquainted with VScode and github. Acquire a company like Spawn, or build your own Replit-like system to go from prompt to app as quickly as possible. 

Verticalization

Cursor in a little under 2 years has built an incredible brand and is likely the go-to AI coding assistant next to Windsurf. The opportunity in front of them is pretty clear. Continue to gain traction in the AI coding assistant market and become the leader. This path can lead to a $100b company in just a few short years with their momentum. From here, they can go vertical and expand into other areas of engineering workflows, and maybe even step into the design world. This is where they become a $250b company. They have this plan detailed out step-by-step in internal documents, but when a company dominates a space and a product like Cursor is doing, this is the logical next step to keep growing. 

Risks 

 We have already written close to 1,000 words so I am going to keep the risk section short, but here are the risks I see to Cursor:

1. Competition from larger LLMs

   1. We have already seen the release of Claude Code, a direct competitor to Cursor which utilizes the same Claude Sonnet model. 

2. General market competition

   1. As I mentioned before, one of Cursor’s biggest competitors is Windsurf, not to mention the hundreds of chat-to-app services (Replit, Bolt, Lovable). This market is scorching hot right now and everyone is trying to grab a piece. 

3. Building an in-house LLM 

   1. It has been said that Cursor wants to build an in-house LLM to reduce how much it relies on outside models. This costs millions of dollars (guess they have that now) to do and will eat into their margins a healthy amount. 

Investment Note: When deciding where to invest $250m, it is pretty easy to cherry pick on of the best AI companies on the market right now, but it is truly one of the best products I’ve used in my life and feels cheap at a $9.9b valuation for the customer experience that it provides. The easy part about this is that Cursor just announced a round 5 days ago so I know the valuation is going to be pretty close to that number.

So, I am going to mark my hypothetical $250m investment at roughly a $9.9b valuation. 

In order to see how bad (or great) I do at these investments, we are going to track them on the 250or60to4.com website. 

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Song of the Week

Nathaniel Rateliff and the Night Sweats are one of the most electric concerts that you can attend. They just party. Here’s an intro song (pun intended).