Google to Pay $2.4 Billion for Windsurf Staff, IP After Startup Ends OpenAI Talks
The Takeaway
• Google will hire Windsurf’s CEO and some of its staff
• OpenAI, Windsurf broke off talks after Windsurf’s concern over Microsoft IP arrangement
• Google will pay $2.4 billion for nonexclusive license that will pay cash to employees, compensation
OpenAI’s discussions to buy Windsurf, the maker of a popular artificial intelligence coding assistant formerly known as Codeium, have ended. Instead, Google will hire Windsurf’s CEO, Varun Mohan, and some of the startup’s staff, both Google and Windsurf said.
The monthslong talks between OpenAI to buy the startup for $3 billion ended in recent days. Among the reasons: Windsurf’s team raised concerns over how the coding assistant would fit into the OpenAI and Microsoft agreement, which requires OpenAI to share its technology with Microsoft, according to two people familiar with the company’s discussions.
Google is paying $2.4 billion for an nonexclusive licensing fee that will pay for Windsurf’s technology and multiple years of compensation for Windsurf staff coming to the company, according to a person with direct knowledge. It will not take a stake in the company, Google said.
The proceeds will likely result in a return for at least some of the startup’s investors, said one person familiar with the deal. Employees at the company will also get cash from the deal, although it is unclear how much or on what terms, according to a different person.
The deal represents a quick payout for investors in the four-year-old startup, which raised $240 million from Greenoaks Capital Partners, General Catalyst, Kleiner Perkins and others.
Kleiner Perkins, which invested about $100 million in the company after leading its Series B, is expected to receive around three times its investment, according to a person familiar with the matter.
Greenoaks has invested $65 million after leading the startup’s seed and Series A rounds and owns 20% of the company, according to a person familiar with the matter.
Meta Platforms also held talks with Windsurf about a deal or acquisition, according to a person familiar with the matter.
Other large tech companies have paid huge sums of money as part of similar transactions, in which they hire much sought-after AI talent without outright acquiring their companies. Last month, Meta invested $14.3 billion in Scale AI while also hiring the startup’s CEO Alexandr Wang and several of its top employees.
Last year, Google hired Character AI co-founders Noam Shazeer and Daniel De Freitas while paying the startup a $2.7 billion licensing fee, which was used to pay out shareholders. And also last year, Microsoft paid a roughly $650 million licensing fee to Inflection to hire most of its staff, including its co-founders. The unconventional agreements have allowed the big tech companies to quickly hire top AI researchers without going through the lengthy review process of a formal merger.
The Windsurf deal will strengthen Google in one of the most important and competitive areas in AI: automated coding tools that make it faster for engineers to write and edit software.
One of the hottest startups in the category, Cursor, recently crossed $500 million in annual recurring revenue and has turned down interest from acquirers in the past, including OpenAI, according to a person with knowledge of the deal discussions. Anysphere, the maker of Cursor, last month raised money from Accel and other investors valuing the company at $9.9 billion.
Mohan and the other Windsurf employees will join Google DeepMind to work on agentic coding, Google said.
Meanwhile, Windsurf will continue to operate as an independent company. Most of its roughly 250 employees will remain at the startup working on building coding tools for large businesses. Windsurf’s head of business Jeff Wang will become CEO of the company, according to a company blog post.
Under OpenAI’s existing agreement with Microsoft, the software giant has exclusive rights to host OpenAI models in its cloud and gets access to OpenAI’s intellectual property through 2030. OpenAI had wanted to exempt Windsurf from the existing contract, The Information previously reported.
The deal talks between OpenAI and Windsurf have been complicated. For one, OpenAI has been trying to renegotiate its deal with Microsoft to prevent the software giant from getting the intellectual property of Windsurf. Meanwhile, Anthropic, which developers see as building the most effective coding model, limited Windsurf’s access to its models after the deal talks first spilled into the public. Anthropic co-founder and chief scientist Jared Kaplan said in an interview that he thought “it would be odd for us to be selling Claude to OpenAI,” when explaining the decision to cut off access.
Fortune and The Verge first reported some details of the deals