Over the last two years, we’ve watched a clear arc unfold in software development: the rise of “code assist” tools supercharging productivity unlike ever before. Products like Microsoft CoPilot paved the initial path, followed by the remarkable success of Cursor through magical code generation and autocomplete with the mere click of a key.
As the market begins to appreciate the value of software development in the fullness of time, we have seen a Cambrian explosion of companies building in this space – ranging from IDE-native co-pilots like Cursor and Cline, to CLI-based tools like Claude Code and Gemini CLI, and more recently in the last 18 months, agentic-first players like Cognition and Factory. At Madrona, we believe that software development is fundamentally changing, with the impeding evolution into full blown automation and agentic capabilities. This will transform productivity well beyond what we have seen so far, and we are only in the early innings of this wave.
Calling the recent shake-up in the developer world a surprise would be an understatement. Google’s $2.4B licensing deal with Windsurf, along with their acquihire of key execs and core R&D talent, was shocking enough, but was also quickly followed by Cognition Labs scooping up the remainder of the business. We are at a critical inflection point where all sides of the market are crossing the chasm and consolidation is happening quickly. Cognition is starting to dip their feet in the IDE through Windsurf, while Cursor and GitHub CoPilot are launching their own Background Agents and Agent Mode. As we know, product and execution velocity will be the key to success.
The pace is dizzying, the noise is loud, but the opportunity ahead is undeniable. We are thrilled to announce our investment and partnership with OpenHands, an AI coding agent that sits at the very agentic end of the spectrum, with the broader vision to become the operating system and orchestration engine for agentic software development – uniquely focused on and starting with the open-source community.
The Early Open-Source Wedge
OpenHands’ open-source project was released in March 2024 and has grown rapidly since, with 60K+ stars today, 300+ contributors, top ranks on benchmarks including SWE-Bench, all reinforced by their unique access to CMU research labs and students. We’re excited by OpenHands’ community of developers, which we believe gives them unique insight into what is working, builds early credibility with developers, and develops trust from organizations that prefer open-source and self-hosted options.
Over the last few quarters, OpenHands found early traction working alongside developers in “toil-oriented tasks” that consume manual time, most notably, fixing bugs, merging pull requests, writing unit tests, managing dependencies – the tasks surrounding code gen that create bottlenecks and suck up valuable time for developers. By focusing on and building trust with the developer, OpenHands will graduate into more sophisticated use cases across the software development life cycle (“SDLC”) over time. As an interesting and exciting data point illustrating what is possible, earlier this summer, the OpenHands agent surpassed the last human developer on their OSS repository!
The Fully Agentic Developer
In software development, the “inner loop” refers to the fast, iterative cycle developers go through while writing, testing, and debugging code locally – historically, where most of the time was spent in the IDE. The “outer loop,” on the other hand, encompasses the broader stages of planning, code review, integration, and deployment that are critical to getting code from written to shipped.
As underlying models and the quality of code generation improves, we believe developers will spend less time in the “inner loop” and more in the “outer loop.” That said, in the short to medium term, developers will continue to work in the IDE, and we believe there needs to be a bridge that pushes the AI-enhanced developer to transform into the fully agentic developer. OpenHands is meeting developers where they are today but also pushing the frontier for what the future of software development could look like.
Enter the Talented OpenHands team
Robert Brennan, Graham Neubig, and Xingyao Wang met in the early days of the OpenHands vibrant open-source project and collectively had the vision to win the market, one passionate developer at a time. The combination of Robert’s industry expertise, Graham’s advanced research at CMU, and Xingyao’s deep empathy for the developer creates the perfect storm to tackle this market.
We are thrilled to announce our investment in the company and honored to partner with the talented OpenHands team, the community of open-source contributors, alongside our friends at Menlo Ventures and Pillar on the journey to power the next wave of agentic software development!