Weeks after Google’s stunning $2.4 billion payment to Windsurf — a deal that involved licensing tech and poaching top talent — the aftershocks are still rippling across Silicon Valley. While the deal delivered healthy returns to investors, it left many of the startup’s 250 employees without any financial reward, sparking controversy and industry-wide backlash.
Breaking Down the Deal
According to sources familiar with the transaction, Google’s payment was split into two halves:
- $1.2 billion went to investors
- The other $1.2 billion facilitated tech licensing and key talent acquisition — including Windsurf’s CEO and top engineers.
For VCs like Greenoaks, Kleiner Perkins, and General Catalyst, the outcome was strong, though not a moonshot. Windsurf had raised about $243 million, with a peak valuation of $1.25 billion. That made the total return for investors roughly 4x their capital.
VC Payouts:
- Greenoaks reportedly turned a $65M investment into $500M (~7.7x).
- Kleiner Perkins netted about 3x return on their Series B lead.
OpenAI’s Failed Acquisition and Google’s Move
The twist? In early 2025, OpenAI was in talks to acquire Windsurf — then known as Codeium — for $3 billion. That deal fell apart at the final stages, and Google swooped in, structuring its $2.4B deal in a way that excluded equity acquisition, avoiding a traditional buyout.
This unorthodox move allowed Google to sidestep standard employee payout structures — leaving only ~50 employees hired by Google with new offers, and the remaining 200+ staff with nothing from the deal.
Employee Backlash and Leadership Scrutiny
In a traditional acquisition, all shareholders — including recently hired employees — would typically receive compensation based on their equity. But in Google’s licensing-heavy structure, only investors and a few top executives benefited.
The result? Widespread discontent, especially after the failed OpenAI deal had raised employee expectations for a big payout.
“Windsurf and others are really bad examples of founders leaving their teams behind,” wrote Vinod Khosla on X. “I definitely would not work with their founders next time.”
While some insiders say that founders and VCs left over $100M in the company treasury, others claim that could have been distributed to employees. Sources disagree on whether the startup could have both paid out staff and stayed solvent without another raise.
Cognition Steps In
After days of uncertainty, Cognition, an AI startup, stepped in and acquired Windsurf’s remaining entity — its IP, product, and the 200+ employees not hired by Google.
Though terms weren’t officially disclosed, sources estimate Cognition paid $250 million. A blog post by Cognition claims that all remaining Windsurf employees received compensation from the acquisition — providing some resolution after the Google deal left many high and dry.
Takeaways for Founders and Investors
- VCs won big — but at a reputational cost.
- Founders faced criticism for not ensuring a broader team payout.
- Google’s deal structure may set a precedent for talent/IP acquisitions without full M&A.
- Employee equity remains a hot-button issue, especially in non-traditional exits.
Conclusion
The Windsurf saga highlights a growing tension in the startup world: how to balance investor returns with employee equity expectations, especially when outcomes deviate from traditional acquisition models. With Cognition offering a partial resolution, the episode also underscores the importance of transparent communication and equitable deal-making in today’s high-stakes tech environment.