Windsurf’s Double Deal Marks a New Frontier for M&A
Four takeaways from Alphabet's $2.4 billion acquisition of the coding app maker
On Friday, Windsurf revealed that it wasn’t selling itself to OpenAI and that instead Alphabet would strike a deal to acquire the company’s founders and engineers, along with a license to the company’s intellectual property, for about $2.4 billion. It was a whiplash that echoed through the tech industry, and recalled the shocking reveal in 2014 that after weeks of reporting that said YouTube would be buying Twitch the live-streaming service ended up selling to Amazon.
Early reports on the deal suggested that Windsurf’s CEO Varun Mohan and the company’s investors would make out handsomely while many employees would be left high and dry, prompting indignation from the Silicon Valley’s commentariat on X over the weekend. Then, just as the narrative that Mohan had left Windsurf in ruins was becoming accepted wisdom, came the Monday afternoon announcement that what remained of Windsurf had been acquired by the Founders Fund-backed startup Cognition.
It was an unusual dynamic: we heard about two separate AI startups that Windsurf employees approached over the weekend about an acquisition, though both of those CEOs declined to engage in the conversation.
The deal marks a significant point in the AI talent wars, especially around coding. But it potentially has even bigger implications than that: a new type of deal structure is now becoming institutionalized, with important implications for deal-makers, employees, and entrepreneurs alike.
Four Takeaways from Windsurf’s Two Deals
(1) The licensing acquihire isn’t just a Biden-era workaround to escape Lina Khan’s wrath. It has other advantages that could make it commonplace.
The conventional narrative around deals where the buyer brings on the talent and licences the tech of the target company, rather than simply buying it, is that they were artifacts of the Biden-era FTC, led by trust-buster Lina Khan. Companies like Microsoft, Google, and Amazon were worried that acquisitions of AI startups would be blocked, or held up for months or even years by legal and regulatory proceedings.
But it turns out the mechanics of the talent and licensing deals has other big benefits — especially speed. Mark Zuckerberg’s mind-boggling high-priced talent raid of AI researchers has lit a fire under the industry; companies want to assemble teams very quickly and any delays feel like a liability.
If the first wave of AI acquihires — Microsoft-Inflection, Amazon-Adept, and Google-Character — were markers of the Lina Khan era, then Meta-Scale and now Google-Windsurf are markers of the Zuck speed-up era. Alexandr Wang was leading the new team at Meta weeks after they first announced the deal. The Windsurf team is already set up at Google, according to a report from The Information.
A senior Silicon Valley lawyer pointed out another advantage of the new M&A model: it’s about “getting the capability, getting the know-how, and not having to acquire the legacy that comes with the company, which could be a bunch of incompatible, lower grade technology.”
Buying assets rather than entities has always had certain advantages, but isn’t usually an option when acquiring a successful firm. Silicon Valley dealmakers have found a way to change that.