Do AI coding assistants need assistance?
Aug 14, 2025
Kaley Ubellacker
Happy Wednesday!
Happy Wednesday! If you’re new here, welcome to Necessary Nuggets, your one-stop pre-seed shop. We deliver updates from Necessary Ventures and helpful tidbits on our little corner of the world. Every edition is also on our blog.
What's happening at Necessary Ventures:
Portfolio company Rubi Laboratories was featured in this month’s Progress magazine edition from AIChE (America’s Institute of Chemical Engineers).
Good Reads 📖
For the rushed reader …
The hype around AI coding assistants is colliding with brutal economics.
Defense tech regulatory challenges are offering a competitive moat for startups that find a way to rapidly scale in the space.
OpenAI's newly released GPT-5 is billed as a “significant step toward AGI,” but it’s received criticism that under the hood it’s just clever repackaging.
For the less rushed reader …
Gross margins
Debugging a cash flow problem might be the hardest challenge a coder will ever have to face. The hype around AI coding assistants is colliding with brutal economics. Once poised to raise at a $2.85B valuation, Windsurf tried to sell to OpenAI for $3B before the deal collapsed, revealing deeper industry problems. AI code-gen startups face tough margins as they pay steep fees to run the latest LLMs. Rivals like Anysphere’s Cursor, GitHub Copilot, and Replit are racing to improve margins by building their own models, but that’s an expensive and risky bet, especially with model makers like OpenAI and Anthropic competing directly. Even Cursor, now at $500M ARR, is hiking prices to cover costs, testing user loyalty. Windsurf’s founders ultimately cashed out to Google in a $2.4B deal, leaving questions about whether the sector’s economics can sustain its hype. The logic might check out, but the balance sheet has a long way to go.
On the radar
Defense startups aren’t just building moats; they’re practically digging fortified trenches. Defense tech regulatory challenges are offering a competitive moat for startups that find a way to rapidly scale in the space. Global VC investment in defense tech surged to over $7 billion across 112 rounds in 2024, more than four times 2022 levels, driven by advances in AI, robotics, and heightened geopolitical tensions. Startups are now a key source of military innovation, but slow procurement cycles, strict compliance requirements, and sovereign supply chain constraints remain major hurdles. While governments are introducing measures to speed up adoption, timelines often still clash with VC funding cycles. Many companies pursue dual-use strategies to generate civilian revenue, though export controls and cap table restrictions can complicate operations. For those that navigate these challenges, regulatory complexity can become a competitive moat, locking in long-term contracts and customer loyalty. In this arms race, the real weapon is signed contracts.
Did AI hit a dead end?
AI is reaching for AGI, but right now it’s taking the scenic route. OpenAI’s newly released GPT-5 is billed as a “significant step toward AGI,” but it’s received criticism that under the hood it’s just clever repackaging. The model’s headline improvements include better code generation, fewer hallucinations, improved multi-step reasoning, and less sycophancy. This innovation is powered largely by a new router that directs queries to the most suitable existing GPT models, including a “Thinking” variant, so the novelty is not in groundbreaking algorithms or fresh data, like many might have expected. While this routing system could make GPT-5 more efficient, reliable, and cheaper to use, it also might hint at a plateau in LLM progress, with gains now coming from orchestration rather than raw capability jumps. Some see this as a pragmatic shift toward controllable, modular AI, while others interpret it as admission that current LLM architectures may have hit their limits on the road to true AGI. LLMs might not know everything, but delegation is a good start.
Market Stirrings 🚩
Here's what the week looked like in pre-seed:
$6.6M
9
Data aggregated from proprietary research and Crunchbase; valuation estimate based on 10-20% ownership stake.

HOW MUCH ARE SEEDS SPROUTING?
Seed-stage software startups raised a median of $3.5 million, according to Carta. 22% of these startups raised between $5 million and $9 million, with less than 10% raising above that threshold.

Fire Up the Pre-Seeds🔥
Highlights from this week’s pre-seed raises:
fintech
Fusepay - Pay day without May Day.
Fusepay raised $350k from Everywhere Ventures, First Check Ventures, Hustle Fund, and others. Fusepay is building modern payment solutions for underserved Indian Ocean islands.
AI
Tabsy AI - Bippety boppety file.
Tabsy AI raised $150k in funding. Tabsy AI is creating a platform where you can find anything on your computer, simply by asking for it.
AI
Tami Software Inc. - C(AI)ptaining the ship.
Tami Software Inc. raised $400k in funding. Tami Software is creating an AI-powered solution to modernize instructor-led training for today’s corporate workforce.
JOBORTUNITIES
| Senior Embedded Systems Engineer | - Copper:
Rethinking the induction stove and making kitchen electrification more accessible than ever. Picture a fossil-free future, without sacrificing aesthetics.
| Production Engineer | - Infinite Machine:
Envisioning the future of transportation beyond cars and into the realm of personal electric vehicles. Its first product, P1, is the ultimate tool for city navigation.
Outro🚪
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Thanks for reading, and see you next week!