In just 72 hours, one of the hottest AI coding startups went from OpenAI’s trophy acquisition to Google’s talent grab to Cognition’s strategic win—exposing deep fractures in the OpenAI-Microsoft partnership and reshaping the AI coding landscape. In a note that was first sent to employees, Wu wrote that Cognition will fully own the Windsurf platform and IP, along with its business. Wu said that Windsurf is currently making $82 million in annual recurring revenue with over 350 enterprise customers.
What started as a bold move by OpenAI to snap up one of the fastest-rising AI coding startups has ended with Google walking away with the prize. OpenAI has officially pulled the plug on its $3 billion acquisition of Windsurf—formerly known as Codeium—after internal battles over who would control the startup’s tech, The Verge reported. At the center of it all? Microsoft’s far-reaching rights to OpenAI’s intellectual property.
The conflict exposed a fundamental weakness in OpenAI’s corporate structure. Under the terms of their multi-billion dollar partnership, Microsoft has extensive rights to OpenAI’s technology and any IP it develops or acquires. The tech giant expected this to extend to Windsurf. However, OpenAI reportedly refused to give Microsoft access, viewing Windsurf’s tech as a key competitive asset against Microsoft’s own GitHub Copilot. This stalemate effectively killed the deal.
The Microsoft Veto: When Partners Become Rivals
That didn’t sit well with OpenAI—or Windsurf. Mohan reportedly made it clear he didn’t want Microsoft anywhere near the startup’s tech, given GitHub Copilot’s position as a direct competitor. The irony is striking: Microsoft’s $13 billion investment in OpenAI, designed to accelerate AI development, became the very thing preventing OpenAI from competing effectively.
In simple terms: Microsoft thinks it owns everything OpenAI builds. OpenAI says, ‘Sure, but this one came with a separate user manual.’ This legal gray area created an opening that Google exploited brilliantly.
Google’s $2.4 Billion Power Play
Bloomberg reports that Google is paying $2.4 billion to license Windsurf’s technology and hire its top employees. “We’re excited to welcome some top AI coding talent from Windsurf’s team to Google DeepMind to advance our work in agentic coding,” said Google spokesperson Chris Pappas in an email to TechCrunch.
But Google’s deal was just the beginning of the chaos. Notably, Google is not taking a stake in Windsurf and will not have any control over the company. However, as part of the deal, Google will have a nonexclusive license to certain Windsurf technology, meaning the AI coding startup remains free to license its technology to others.
72 Hours of Silicon Valley Drama
What happened next was unprecedented. Cognition president Russell Kaplan indicated in a post on X that the Windsurf acquisition truly came together over the weekend, just hours after the Google deal was made public. He noted that the first call was made after 5 p.m. on Friday and that an agreement was signed Monday morning.
On X, Wang wrote that “the last 72 hours have been the wildest rollercoaster ride of my career,” but that he is now “overwhelmed with excitement and optimism, but most of all, gratitude. Trying times reveal character, and I couldn’t be more proud of how every single person at Windsurf showed up these last three days for each other and for our users.”
The Human Cost and Corporate Maneuvering
The most controversial aspect wasn’t the corporate chess game—it was the treatment of Windsurf’s employees. But ultimately, I’m not sure how much the distinction here matters given how many employees seemingly joined Windsurf recently and clearly were unvested, likely with a one-year cliff. In a “normal” acquisition, a company would likely accelerate at least some level of vesting to reward everyone in a liquidation event (depending on the “triggers”). But this isn’t a liquidation event, of course.
Cognition, which offers an A.I. coding assistant called Devin to help software developers create programs, said its deal would allow all Windsurf employees to participate in financial gain, according to a letter sent to Windsurf employees. Windsurf employees with equity will receive an “accelerated vesting” schedule, which means their stock can be cashed in earlier than anticipated, according to the letter.
Strategic Implications: The New AI M&A Playbook
In our current M&A environment in the AI space, there are but two types of deals: ‘hackquisitions’ and ‘hackquihires’. At first, they seemed like they were the same deal – that is, a way to acquire a company without really acquiring it because, of course, the regulatory environment wouldn’t allow for such a deal.
The Windsurf saga reveals several critical insights:
IP Rights Are The New Battleground: Microsoft’s rights to OpenAI’s tech? Gone. Poof. Sounds dramatic, and it is. But here’s the catch: no one really agrees on what AGI is, let alone how to measure it.
Talent Wars Escalate: The raid prompted a raw internal memo from OpenAI’s Chief Research Officer, Mark Chen, who wrote, “i feel a visceral feeling right now, as if someone has broken into our home and stolen something,” exposing the high emotional stakes of the corporate battle.
Consolidation Accelerates: With the addition of Windsurf’s talent and IP, Cognition may have a supercharged startup to compete with giants in the AI coding space, such as OpenAI, Anthropic, and Cursor.
The Bigger Picture: OpenAI’s Structural Crisis
There’s also the matter of OpenAI’s corporate structure. The company is trying to transition from a capped-profit model to a public benefit corporation to raise more capital and potentially go public. But Microsoft, with its 49% profit-sharing rights (up to a $130 billion cap), has veto power.
This isn’t just about one failed acquisition. It’s about whether OpenAI can operate as an independent company while tied to Microsoft’s infrastructure and IP agreements. People on X aren’t ignoring the tension. One post summed it up this way: “Microsoft built OpenAI’s infrastructure, gave it $10B, let it sell to competitors and now might kill its for-profit plans over IP rights and AGI semantics. Big tech doesn’t do charity.”
Winners and Losers
Winners:
Google: Gained top talent and technology for $2.4B without regulatory scrutiny
Cognition: Acquired a complete business with $82M ARR and 350+ enterprise customers
Windsurf Employees: All received financial participation and accelerated vesting
Losers:
OpenAI: Lost its largest acquisition target and exposed partnership vulnerabilities
Microsoft: Faces questions about whether its OpenAI partnership helps or hinders competition
The Bottom Line: The Windsurf saga marks a turning point in AI M&A. As companies become more valuable and partnerships more complex, expect more creative deal structures—and more spectacular failures when corporate interests collide.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
