Windsurf, Cognition, and Google: what just happened in AI?

In one of the fastest-moving and most debated moments in the AI startup world, Windsurf, a fast-growing developer tools company, was almost acquired by OpenAI. Instead, its leadership team was hired by Google, and its remaining assets were bought by Cognition AI. All of this happened over the course of just a few days.

The whirlwind raised big questions for founders, customers, and investors alike:
Who actually owns Windsurf now? What happens to its tech and team? And is this how all AI acquisitions will work going forward?

Let’s break down what happened, why it matters, and what it says about the future of AI, startups, and tech regulation.

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What is Windsurf?

Windsurf is a high-growth AI coding startup, backed by Kleiner Perkins and Greenoaks, with ~$82 million in ARR and over 350 enterprise customers, known for its agentic IDE designed to augment developer workflows. (Reuters)

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Here’s a quick overview of the events:

• OpenAI’s $3B deal collapses:
  OpenAI was in late-stage talks to acquire Windsurf, reportedly valuing it around $3 billion. But according to TechCrunch, the deal fell apart over concerns about whether Microsoft, OpenAI’s biggest backer, would gain access to Windsurf’s tech.
• Google swoops in ($2.4B “reverse-acquihire”):
  TechCrunch reported that within hours, Google DeepMind hired Windsurf’s CEO Varun Mohan, co-founder Douglas Chen, and several top engineers. At the same time, Google secured a license to some of Windsurf’s core technology, in a deal reportedly worth $2.4 billion. This wasn’t a full acquisition, more like acquiring a portion of the team and tools, without buying the company. Check out Windsurf’s statement.
• Cognition buys the rest (July 14):
  Just days later, Cognition AI, maker of the AI coding agent Devin, acquired what was left: Windsurf’s codebase, brand, enterprise customers, contracts, and remaining employees. The terms weren’t disclosed. Cognition plans to fold Windsurf’s tech into Devin, which already aims to be a fully autonomous software engineer. Here is Windsurf’s statement.

So who got paid, and who didn’t?

The Windsurf deals sparked widespread discussion over who actually benefited financially. While exact terms remain private, multiple reports help paint a clearer picture. 

When Google hired Windsurf’s CEO, co-founder, and several core engineers, it did so as part of a $2.4B reverse-acquihire and IP licensing deal, not a company-wide acquisition. According to TechCrunch and The Information, employees who joined Windsurf in the past year did not receive a payout from that deal.

Shortly after, Cognition acquired the rest of Windsurf’s assets including its product, brand, and remaining staff. Cognition committed to waiving vesting cliffs and ensuring 100% of retained employees would participate financially in the new structure, likely through equity in Cognition rather than upfront cash.

This split reflects a broader reality in this kind of deal: when acquisitions are partial and fragmented, compensation outcomes can vary widely based on role, timing, and which side of the deal you end up on.

It also highlights how this structure (no full company acquisition) may have avoided triggering antitrust review, despite major shifts in talent and IP control. If more AI startups are carved up this way, regulators may face pressure to update how consolidation is defined.

“Split” acquisitions and employee payouts

Google’s move (separating Windsurf’s leadership and IP from the rest of the company) has sparked debate over fairness and transparency.

Here are real voices weighing in:

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These reactions reflect the tension: while Cognition’s deal provided some financial clarity by offering accelerated vesting and equity participation, critics question whether newer or less senior employees truly benefit as much as founders or investors.

The core issue? As this deal illustrates, when startups are split across entities, the equity rules and payout structures can vary dramatically, often favoring select teams over the broader employee base. This underscores the growing need for more transparent protection mechanisms for all employees, especially in emerging “reverse-acquihire” and asset-split deals.

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Final Thoughts

The Windsurf saga shows how fast the ground is shifting in AI. Startups aren’t just being acquired, they’re being disassembled and redistributed. That means more flexibility for buyers, but also more risk for customers and teams.

For founders, this is a reminder to think not just about building a valuable company, but about how its value could be pulled apart.

For everyone else, it’s a sign that the future of tech M&A may not come in one neat package anymore.