While AI coding startups like Cursor raise significant funding after barely three years of existence, Replit’s path to a three billion dollar valuation has been anything but swift. For CEO Amjad Masad, who has been building tools to democratize programming since 2009, it is a story of persistence through multiple failed pivots, years stuck at the same revenue plateau, and a near-death moment that forced him to cut half his staff.
That makes what happened next all the more remarkable. Earlier this month, the Bay Area-based company closed a two hundred fifty million dollar funding round led by Prysm Capital, nearly tripling its valuation from 2023. The raise came on the heels of unprecedented revenue growth for the company, from two point eight million dollars last year to one hundred fifty million dollars in annualized revenue in less than a year. But for Masad, this moment represents something more than a startup catching fire. It is the culmination of a sixteen-year obsession.
Their mission has always been the same, Masad stated on a recent podcast. Initially, they said they wanted to make programming more accessible, and then they upped the ante a little bit by saying they were going to create a billion programmers. It is purposely audacious, but it is also something that Masad, a Palestinian-Jordanian, has been working toward for his entire career.
As he tells it, he came to the United States in 2012 after his open-source coding project began gaining attention, including from the New York Times. But he had been making programming more accessible since building his first online coding experience back in 2009, with his work as an early engineer at the startup Codecademy kicking off what became the massively online open courses revolution. His code also powered the in-browser tutorials of Udacity, a Codecademy rival.
Still, turning that vision into a viable business of his own proved a lot harder than he anticipated. Replit was founded in 2016, and for eight long years, the company struggled to find product-market fit. They had reached that two point eight three million dollars in annual recurring revenue back in 2021, Masad recalled. He noted how painful it had been, hovering around the same revenue for four or five years.
The company tried selling to schools, which Masad noted was incredibly difficult, pivoted through different business models, and watched each one stabilize around the same modest revenue level. Along the way, Replit built sophisticated infrastructure for cloud development environments and multiplayer coding, which is collaborative editing akin to Google Docs but for programming. But the technical achievement was not translating into revenue growth, and by last year, with the company at one hundred thirty employees and burning through cash, Masad made a painful decision. He looked at their burn rate and their progress on revenue, and it just did not make any sense. The business was not viable. Replit cut its headcount by fifty percent, bringing it down to around sixty to seventy people at its lowest point.
Then came the breakthrough. Last fall, Replit launched Replit Agent, which Masad calls the first agent-based coding experience in the world that cannot just write code but debug it, deploy, provision the database for you, just act as a true software engineering partner. Soon after, in January of this year, he announced that Replit was abandoning professional developers as its core market.
Masad acknowledged that the Hacker News community was really unhappy about this shift. But he has not looked back, completely pivoting away from competing in the crowded market of tools for professional developers, where companies like Cursor and GitHub Copilot are battling it out, to instead focus on creating a billion software developers from white-collar employees with no technical background. The idea of making programming more accessible to the average individual, to the knowledge worker, really, that is where they think their market is, Masad explains. It is a fundamentally new market.
Right now, that bet looks very smart. Numerous reports this summer said that revenue at Replit had grown to over one hundred fifty million dollars in annualized revenue and Masad hinted that it is now even higher. He also said that unlike many AI-powered coding companies, Replit is gross margin positive. On enterprise deals, which make up an increasing share of revenue, margins are eighty to ninety percent, according to Masad.
It is hard to verify such a claim, but Replit’s market position received some validation when Andreessen Horowitz released its first AI Spending Report in partnership with fintech firm Mercury. Analyzing transaction data, the report tracked the top fifty AI-native application layer companies that startups are actually spending money on. While major labs OpenAI and Anthropic took the top two spots, Replit landed at number three, outranking every other development tool.
Profitability is rare in AI coding because many competitors face what Masad calls the negative gross margin trap. The reality is that serving professional developers with AI assistance can be compute-intensive. Counterintuitively, Replit’s focus on non-technical users, who might seem like they would require more AI assistance, works in their favor on the business model front for enterprise customers like Zillow, Duolingo, and Coinbase, which pay one hundred dollars per seat, plus usage-based pricing built on top.
This new path has not been without some faceplants. In July, venture capitalist Jason Lemkin went viral after the newest version of Replit’s AI agent deleted his production database with over one hundred executive contacts, fabricating four thousand fake records afterward and later admitting to Lemkin that it panicked. There is a failure mode in AI agents called reward hacking, where models become so obsessed with achieving a certain goal that they effectively cheat when they miss the mark.
Rather than becoming defensive, Masad and his team owned the problem. Within two days, they rolled out an automatic safety system that separates a user’s practice database from their real one. The way Masad describes it, it is a little like having two versions of a website’s filing cabinet. The AI agent can experiment freely in a development database, but the production database, which is the real thing that users interact with, is completely walled off.
Masad said the incident ultimately put the company on strong footing, given the problems around safety and security it needed to figure out, and fast. He stated that if you solve hard problems, then you have a technology moat. Lemkin, for his part, says he has become a super user of Replit despite having no technical background just months ago.
Still, even now, Replit is not out of the woods. If anything, Replit’s success has painted a target on its back. The company still faces an existential threat from the very AI labs whose models power its platform, Anthropic and OpenAI. Both companies have launched their own coding tools that compete directly with companies like Replit and Cursor, and these foundation model companies can afford to subsidize their coding tools and post-train their models on their own products, optimizing performance in ways that third-party platforms might always struggle to replicate.
Replit’s advantage, according to Masad, lies in targeting non-technical users rather than professional developers, plus the sophisticated infrastructure around deployment and database management that it has built and which foundation model companies still do not prioritize for now. Plus, Replit has another unusual advantage for a startup, a three hundred fifty million dollar war chest. Despite raising one hundred million dollars in 2023, the company had not touched those funds by the time it raised this latest round, Masad said. The company is capital efficient by design, though Masad joked that as an entrepreneur who grew up watching his refugee father struggle, one thing he needs to learn is to be less frugal and start spending money.
Whether that edge keeps Replit ahead of competitors is an open question, and it is one about which Masad is mindful. Right now, the plan is to scale operations, accelerate product development, and pursue acquisitions, both acqui-hires and potentially companies working on agent automation in specific verticals. But for Masad, who appeared on a popular podcast in July and has seen his company’s fortunes transform, the moment is bittersweet. When asked how it feels to be receiving so much attention and that three billion dollar valuation, he invoked the adage that this too shall pass. This might mean that when you are in a bad situation, that will pass, but we are also in a good situation that will pass.
It is a stoic response from someone who spent the better part of a decade working away at the same revenue level, convinced that AI agents would eventually transform programming but unable to prove it to the market. But one major difference between Replit and the wave of AI coding startups now flooding the market is that Masad has lived through multiple hype cycles and has emerged with something relatively differentiated and reportedly profitable. He said he has learned to be a little stoic, and that what matters is for them to do the right thing, be principled, and move forward.