(Bloomberg) -- Not long ago, Silicon Valley was dismissive of startups like Harvey. While OpenAI developed cutting-edge artificial intelligence models with the potential to shake up almost every industry, Harvey had a more modest goal: building software that makes OpenAI’s technology more useful for lawyers. “The market’s perception of companies like us… was that they’re GPT wrappers,” said Harvey Chief Executive Officer Winston Weinberg, referencing a derisive term used to suggest the repackaging of OpenAI’s models. If investors “were going to put money into something,” he added, “it needed to be into OpenAI or Anthropic.”Today, so-called AI wrappers are all the rage. Step into any venture capital office in Silicon Valley and you’ll hear investors buzzing about startups that offer AI chatbots, research tools and other software applications for coding, clinicians and customer service, all built at least in part on the backs of large language models (LLMs) created by other leading AI developers.These startups are seeing revenue and valuations grow at a fast clip, often while spending a fraction of the amount that top AI model developers do on chips, data centers and talent. Harvey, founded in 2022, surpassed $50 million in annual recurring revenue in December, Weinberg said. Likewise, Anysphere, the startup behind the popular code-editing tool, Cursor, has hit $100 million in annual recurring revenue, according to people familiar with the matter, who spoke on condition of anonymity to discuss private information. (Anysphere did not respond to a request for comment.)Michael Mignano, a partner at Lightspeed Venture Partners, likens this moment in AI to the original smartphone app boom nearly two decades ago. “Just like after the iPhone launched, there were millions of new mobile apps,” said Mignano, an investor in the AI notetaking service Granola, which uses technology from OpenAI and Anthropic. “Now with AI and LLMs, there will be millions of new AI products.”
Most Read from Bloomberg
-
Trump Administration Plans to Eliminate Dozens of Housing Offices
-
Republican Mayor Braces for Tariffs: ‘We Didn’t Budget for This’
-
NYC’s Finances Are Sinking With Gauge Falling to 11-Year Low
Investors are eager to put their money into these services. Harvey raised a $300 million round earlier this year led by Sequoia at a $3 billion valuation. Anysphere raised a $105 million round led by Thrive Capital and Andreessen Horowitz in January valuing it at $2.5 billion. And VC demand is so high that founders like Varun Mohan say the conventional fundraising process “isn’t something we have to do.”Mohan’s company, Codeium, which also offers an AI tool for coders, is currently raising money at a valuation near $3 billion in a round led by Kleiner Perkins, according to a person familiar with the matter. (TechCrunch earlier reported Codeium’s fundraising. Kleiner Perkins did not respond to a request for comment.)Certainly, VC appetite remains strong for OpenAI and Anthropic, as evidenced by their recent megarounds. But backing these richly valued companies is getting too costly for some firms. Investors have also begun to question the wisdom of AI companies pouring billions into developing models in the wake of DeepSeek, a Chinese upstart that claims to have built a competitive option for just $5.6 million. And several notable model makers have shifted away from the race to build more advanced AI systems or been partially absorbed by Big Tech firms, raising fears of more consolidation to come.“At this point, it’s very clear that the apps are definitely the best place to invest because that is where the revenue is, that is where the customers are,” said Jesse Zhang, CEO of Decagon, a startup that builds AI customer support agents in part by using models from OpenAI and Anthropic. “The models will get better and better, and cheaper,” he added, and the apps will benefit the most from those improvements.A New GenerationPerhaps no company embodies the promise of the AI app era like Anysphere. Founded in 2022 by four friends who met at the Massachusetts Institute of Technology and had little more than intern-level job experience, Anysphere has seen soaring growth for its AI-powered code editor, Cursor.Anysphere’s investors claim it’s the fastest-growing software startup of all time, a title previously held by Wiz, a cloud security company that reached $100 million in annual recurring revenue in only 18 months. Anysphere hit that in just 12 months, according to people familiar with the matter.Leaning on a mix of LLMs from other providers, Anysphere has built a coding tool that developers say saves them time — and it’s won a cult following of engineers and tech elites willing to pay for the service. Coinbase Global Inc. CEO Brian Armstrong wrote on X that 100% of his company’s coders use Cursor.“There is a new generation of brilliant engineers who know how to use this new computing paradigm to reinvent product experiences,” said Miles Grimshaw, a Thrive Capital general partner and investor in Anysphere. Despite the company’s rapid growth, Anysphere currently has about 40 employees. Here, too, there are echoes of early smartphone app successes like Instagram, which gained traction in Silicon Valley with a very lean staff.