Cursor Acquires Koala: A New AI Coding Competitor to GitHub Copilot

Cursor Acquires Talent to Challenge GitHub Copilot

The company behind the rapidly growing AI coding application, Cursor, is actively recruiting skilled professionals from other AI-focused enterprises. This strategic move aims to strengthen its position against Microsoft’s GitHub Copilot and attract businesses seeking to enhance employee productivity through AI-driven coding solutions.

Acquisition of Koala

Recently, Anysphere, the creator of Cursor, finalized an agreement to acquire Koala, an AI-powered customer relationship management (CRM) startup. This information was shared by two sources with knowledge of the transaction with TechCrunch.

The acquisition will integrate key engineers from Koala into a newly formed team dedicated to enterprise-level readiness. However, it’s important to note that not all Koala employees will be joining Anysphere, and the core CRM product will not be integrated into Cursor, according to a source.

Koala's Closure

Koala announced its plans to cease operations in September, as detailed in a blog post released on Friday. This decision follows just five months after the startup secured $15 million in Series A funding, led by CRV, with contributions from HubSpot Ventures, Recall Capital, and Afore.

The company, established nearly four years ago, employed approximately 30 individuals and served clients including Vercel, Statsig, and Retool, as indicated by LinkedIn data.

Anonymity and Lack of Comment

Individuals involved in this story requested to remain anonymous when discussing confidential matters. Neither Koala nor its founders responded to requests for comment from TechCrunch. Cursor also declined to provide a statement.

The Shifting AI Startup Landscape

The Koala deal highlights a current trend in the AI startup ecosystem. We are witnessing the emergence of powerful AI tools like Cursor, experiencing rapid growth and challenging established industry leaders such as Microsoft and Anthropic.

Simultaneously, a growing number of startups, similar to Koala, demonstrate initial promise – including a co-founder from Meta and advisors like Jack Altman – but ultimately struggle to maintain momentum.

Leveraging Emerging Talent

Cursor is strategically capitalizing on this situation, utilizing promising but struggling AI startups to bolster its own enterprise capabilities. Anysphere also recently appointed Travis McPeak, the former CEO of cybersecurity startup Resourcely, to lead its security teams, as reported by The Information.

These acquisitions mirror the “reverse acqui-hires” often seen in Big Tech, such as Meta’s recent acquisition of leaders from Scale AI. Cursor, like Meta, can swiftly develop new business areas while avoiding association with less viable ventures.

Transitioning to an Enterprise Platform

Cursor aims to leverage the talent acquired from Koala and Resourcely to evolve from a tool primarily used by individual developers to a comprehensive, enterprise-wide platform accessible through substantial contracts. Currently, many enterprises favor Microsoft’s GitHub Copilot, an AI-powered extension for popular IDEs like VS Code and JetBrains.

Cursor, functioning as a standalone AI-powered IDE, frequently outperforms GitHub Copilot in direct comparisons. However, Microsoft maintains a strong position in the enterprise market due to its established relationships, extensive sales network, and robust security and support infrastructure.

Expanding Sales and Market Reach

Over the past year, Cursor has significantly expanded its go-to-market and sales team, now comprising dozens of employees. These team members are actively engaging with Fortune 500 companies, demonstrating the integration of Cursor’s AI tools into their operations, according to an informed source.

Impressive Growth and Revenue

Cursor’s enterprise strategy appears to be yielding positive results. Anysphere reported reaching $500 million in Annual Recurring Revenue (ARR) in June and currently serves over half of the Fortune 500, including prominent companies like Nvidia, Uber, and Adobe. Revenue continues to grow, with an increasing proportion originating from enterprise deals, as indicated by a source familiar with the matter.

Facing Increasing Competition

As Cursor challenges Microsoft, it must also address a growing competitive landscape.

A significant competitor is Anthropic, a key partner to Anysphere, whose Claude Code product has experienced substantial growth in recent months. Cursor heavily relies on Anthropic’s AI models to power its coding products, and conversely, Cursor is a vital customer for Anthropic.

Recent Acquisitions by Competitors

Furthermore, Google recently acquired the leadership team of Windsurf, a major competitor to Cursor in the AI-powered IDE space. Cognition, the developer of the AI coding agent Devin, also acquired the remaining Windsurf team, potentially providing a significant boost to both companies.

While these are distinct types of AI tools, employers often perceive them similarly – as solutions capable of enhancing the productivity of software engineers. This perception may be accurate, as Anthropic, Microsoft, Cursor, and Cognition are all developing AI coding agents aimed at automating entire workflows, potentially representing the future of the AI coding space.

The Pursuit of Product-Market Fit

The intense competition stems from the fact that coding tools have become one of the first AI products to achieve “product-market fit” – a crucial milestone for attracting venture capital investment. These products are used daily by millions of software engineers and are beginning to generate substantial revenue.

Scaling for Long-Term Success

The current race extends beyond simply developing the best AI coding tool. It centers on which company can scale its enterprise operations most rapidly while the market remains open. Given the aggressive moves by Microsoft, Google, and Anthropic, Cursor’s acquisition strategy will be pivotal in determining whether it joins their ranks or becomes another startup unable to scale quickly enough.