Case Study: Lessons on A.I. acquisitions from Windsurf’s chaotic acquisition.
This spring Bloomberg reported that OpenAI was in talks to buy the company for $3Bn (which would have been the 2nd largest acquisition made by OpenAI after its acquisition of Johnny Ive’s I.O. Company).
The deal fell through.
In July of this year Google announced that they would spend 2.4 Bn to licence some windsurf technology and bring over some of their key people including the company’s cofounders Varun Mohan and Douglas Chen.
A New Kind of Contract
The traditional contract that silicon valley companies have operated under says that employees of a startup who stick with it through an acquisition will share in the windfall of the company’s success.
But large tech firms are starting to carve out talent to simplify the ‘acquisition process’.
Instead of buying a company, its employees, its IP and its brand, large tech firms beginning to cherrypick (or ‘blitzhire’) a small number of people and offer them outsized salaries to leave the business. While the concept of an acquire isn’t new in the tech industry, the blitzhire approach has some defining characteristic that change the game for emerging companies and their employees:
Speed: these deals are structured for max velocity in an effort outpace competitors.
Circumvention of process: blitzhire deal structure is designed to bypass standard M&A procedures.
Corporate shell: this approach may licence company assets and intellectual property, but the corporate shell is typically left to wind down.
Other notable examples including Inflection AI sale to Microsoft and Google’s acquisition of Character AI.
Industry reaction ↓
While notable M&A activity for AI startups more than doubled in Q2 of 2025 (compared to the five year average), this new approach has its critiques.
“Windsurf and others are really bad examples of founders leaving their teams behind and not sharing the proceeds with their team [...] I would definitely not work with their founders next time”.
— Vinod Khosla, founder, Khosla Ventures via ‘X’
After the Windsurf founders exited the business, Cognition AI came in and acquired the remaining team plus the company’s asset which created a meaningful outcome for the Windsurf employees.
Despite the fact that the Windsurf employees had a positive outcome, this trend does not look like it’s going away. This summer Scale AI announced it’s laying off 200 people as it folds into Meta.
‘There's an unspoken covenant that as a founder, you go down with the ship’
— Scott Wu, Founder of Cognition via ‘Twenty Minute VC’
6 Insights from Windsurf’s Chaotic Acquisition
1. AI stakeholders believe that generative AI is a winner takes all game.
2. A handful of trade secrets in top AI companies could hold trillions of dollars of value if they are incorporated into one of the big tech firms making these strategic acquisitions.
3. The scale and the stakes of training runs for the larger models are high. Companies are spending hundreds of millions of dollars on gigantic models that are building massive clusters of supercomputers.
4. Failure is becoming incredibly expensive which means the right AI talent has a high price tag.
5. Big Tech looks to be reshaping itself around the idea that the first company to reach Artificial General Intelligence (AGI) will reap the biggest and only meaningful reward.
6. The way employees at some companies are being sidestepped in the MnA process could be a harbinger of the future of running tech firms at large.
Sources ↓
Google's Windsurf Deal a Wake-Up Call for AI Startups | Bloomberg
Vinod Khosla says Windsurf's founders abandoned their team | Business Insider
20VC: Cognition CEO Scott Wu on Acquiring Windsurf | Twenty Minute VC
Microsoft pays Inflection $650 mln in licensing deal while poaching top talents | Reuters
