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This is a highly speculative post, with conjectures presented as facts. Some things that irked me:

- Cursor did not hire Anthropic's "researchers". It hired the guys who built Claude code (PM and dev). Who then promptly went back to Anthropic in 14 days. A researcher for Cursor need not come from Anthropic either. One high profile recruit for them was Jack Gallagher (Midjourney) who is probably one of the best at RL.

- Google's deal with Windsurf is structured that way because they likely could not directly acquire, or were not confident that it would have gotten past the antitrust. A signal for that is such deal increased in last few years after FTC refused to allow any deal over $100M or so. Microsoft has done such deals too. Meta would have acquired scale ai in older times. Not sure with Openai, but they arent as scrutinized as Google for such deals. To imply that this means Google did not care about ARR is not justified. and then google licensed Windsurf's IP too.

- Openai's agreements with Microsoft is more probable than they did not complete the acquisition because of negative gross margins.

- Plus, the old adage about how a growing startup is worth more because of a stellar team. You strip a team away and still get 2x multiple is sure enough valuing the current ARR highly.

I thought the userbase is valuable. A sale at this point made sense because they might not have been to get the money if they waited a year. Reasons laid out in the article are not why I think so.

Every single article on this domain is just human hallucination. Little to none research and due diligence done.

By the way, The latest article before this one was "tokens are getting more expensive". (One week before $1.25/$10 GPT5 releases. Talking about aging like milk...)

There are tells that it’s not written by a human, but it’s harder to know how much it’s guided.

> Little to none research and due diligence done.

There has never been more drama in tech. 007 level drama with chinese and russian spies.

Can we just relax and have fun.

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Thank you for reminding me words have meanings! I never know that.

I'll keep using "human hallucination" to describe bullshit articles about AI though.

> Google's deal with Windsurf is structured that way because they likely could not directly acquire, or were not confident that it would have gotten past the antitrust. A signal for that is such deal increased in last few years after FTC refused to allow any deal over $100M or so.

Any proof of this? It's quite speculative. Also FTC scrutiny is not escaped if you only acquire a percentage of a company to avoid antitrust scrutiny (as you claim Meta did, speaking of which...)

> Meta would have acquired scale ai in older times

According to reporting, Meta was solely interested in Wang and his inner circle, and did not want to acquire a significant stake in the company. Wang negotiated them UP. It's not as if they wanted to buy the whole thing at its previous valuation, let alone a higher valuation. (source: https://archive.is/ZPoNJ)

This is speculated as the reason as blockbuster acquihires have risen:

https://www.bloomberg.com/opinion/articles/2025-07-17/meta-g...

https://natlawreview.com/article/rise-acquihiring-post-layof...

https://bowoftheseus.substack.com/p/update-the-gut-and-licen...

Meta's case is interesting. In the past, for what they want, I still feel they would have just acquired the company and be done with it. Now, they explored more paths, and ended up negotiating for Scale AI's stake.

Did you read the articles you linked? Here's one except:

> The data shows that after four years of being frozen out of the acquihire market by former FTC chair Lina Khan, big tech companies are back with a vengeance

That (and the accompanying chart showing total acquihires over years) says acquihires existed before regulatory scrutiny, stopped while that scrutiny ramped up, and came back when the scrutiny went away. Not what you suggested, that it's a novel tool used to avoid scrutiny.

I appreciate how you feel, but it's based on ultimately, just a feeling, not any statistics (the stats in your linked articles paint another picture entirely about acquihires). Also, there is the basic fact that FTC scrutiny cannot be avoided by minority ownership or acquihiring alone. They have the right and ability to investigate even minority purchases of stake in a company. This is a good case study of that: https://www.faegredrinker.com/en/insights/publications/2018/...

> Google's deal with Windsurf is structured that way because they likely could not directly acquire, or were not confident that it would have gotten past the antitrust

I've been following OpenAI, Google, and Microsoft's acquisitions over the last five years, and the US government has given them the green light when it comes to AI. It makes sense since the FTC and DOJ directors are appointed by the government, and the government is concerned about China's advances in AI.

Also, Google pulled the same move Microsoft did with Inflection AI. They hired Windsurf's CEO, its co-founder, and other key people, and licensed Windsurfs codebase without acquiring the company. It was the smartest business move they could make.

So from a business and political point of view, your assumption doesn't hold up.

> Openai's agreements with Microsoft is more probable than they did not complete the acquisition because of negative gross margins.

This is also incorrect and the first time I've heard this reason. Executives have already told reporters that OpenAI and Microsoft have an agreement, and Microsoft doesn't want OpenAI entering the software development arena. They hold the keys to GitHub, and that's keeping everyone out for now, including Google.

> Plus, the old adage about how a growing startup is worth more because of a stellar team. You strip a team away and still get 2x multiple is sure enough valuing the current ARR highly.

I don't think so. Investors back people first, and in AI, the people are everything. Just look at how much Meta is willing to pay top AI researchers. OpenAI, Microsoft, and Google are all chasing the same talent. Knowledge is extremely valuable when it comes to AI/ML.

Google learned this the hard way when it let Noam Shazeer leave. When they realised how valuable he was, they ended up paying $2.7 billion to bring him back.

Meta's case might be different, and hence i wrote it as scale would have been acquired in past times instead of an investment like they did today. For other companies, the hiring aspect avoids M&A filings, balance sheet consolidation, and still give the big tech companies access to IP and talent. Easier path to get what you want than say Wiz acquisition still waiting to be completed. The stance may have recently changed, but seems like big tech companies are not testing it. (it's also not just US, but other jurisdictions have a say too. Meta had to sell Giphy due to issue raised by UK/Europe)

Re Microsoft and Windsurf, this[1] article claims Windsurf did not want MS accessing it's intellectual property, a default condition for Microsoft OpenAI deal.

> Windsurf didn’t want Microsoft to have access to its intellectual property — a condition that OpenAI was unsuccessful in getting Microsoft’s agreement on, people familiar said. That was one of several sticking points in Microsoft and OpenAI’s ongoing talks about the AI company’s effort to restructure into a commercial entity. Microsoft’s existing agreement with OpenAI says the software giant is entitled to access the startup’s technology.

This is different from Microsoft not wanting openai to compete with Github copilot, given thats what they do with Codex anyway.

> Knowledge is extremely valuable when it comes to AI/ML We agree on that, but even in the past most acquisitions would value teams at a certain cost too. Without the team that built it, any company would struggle to get a good multiple. OP's claim was that lower multiple was cos of margins only, and i disagreed there.

[1]: https://www.bloomberg.com/news/articles/2025-07-11/openai-s-...

  openai's $3b acquisition of windsurf falls apart. after months of negotiations, they walk away.

  google announces they're paying $2.4b to hire windsurf's ceo and 41 researchers for deepmind. not to acquire windsurf. just the humans. the same day openai walks. what a coincidence!

My question is what happened to the $2.4B? Apparently very little of it made its way to the Windsurf employees, as #2 tweeted last week. It wasn't an acquisition although Cognition was. Cognition bought a company for $250M that just got a check for $2.4B. How exactly did this work?

> My question is what happened to the $2.4B

We don't know what deal they made with the VCs, but they could have multiple liquidation preference agreements.

> A liquidation preference multiple (e.g., 1x, 2x) determines how much investors receive before any distribution to common shareholders. A 2x preference means investors are entitled to twice their initial investment amount before others receive payouts.

So Google writes a check for $2.4B to Windsurf and gets the IP. Check deposited with Windsurf. Ledger entries made. Windsurf now has $2.4B in assets more than it had before. Money in the bank. Preference cliffs do not apply to this licensing deal. Key employees and CEO then take a 2.4 mile hike over to Google. Lunch is served.

Then Cognition offers $250M for Windsurf itself. Ok, I can imagine the preference cliffs kicking in now. But Windsurf just got a check for $2.4B and I don't think they had anywhere close to that in liabilities.

So where'd the $2.4B go? This seems like a strange deal.

1.2B went to investors, the remaining 1.2B was actually an incentive/payout for the founders/employees that google took. The company basically has whatever money it had in the bank, plus a bit more from Google - but no investor liabilities.

Ok, Google can pay $1.2B to the CEO and key employees to get them to walk. The other $1.2B is for the Windsurf IP and it cannot go directly to the investors. It has to go through the company where it is first revenue and then an asset.

But Windsurf could distribute profit at this point before the Cognition deal. I guess this is where the preference rights got exercised. The tweet from employee #2 said his stock wasn't worth anything. Actually, he got preferenced out of the $1.2B in dividends.

Then came the $250M Cognition deal. He got preferenced out of the proceeds of the Cognition deal as well.

According to TechCrunch it was direct to investors: https://techcrunch.com/2025/08/01/more-details-emerge-on-how...

The company can also issue a share buyback. Doesn't have to be profits. And you're right about the preference rights.

Employees who haven't vested their shares can't complain/enforce tag-along/sue for minority investor rights.

If a #2 employee of such a unicorn startup with so much funding got dealt such a blow in this deal, what does this tell us about our prospects as employees of any startup?

Isn't this an admission that you cannot get rich by getting a job at a hot private early-stage startup? Even if you're the employee #2?

That you'd be far more likely to get rich by getting a job at Google / Meta / Amazon, getting rich through RSU time-of-award to time-of-disposition growth, then doing private investing in a company like Windsurf, then getting even richer as an investor, all actual employees creating value be damned?

Yes exactly. The VCs and investors have broken the unwritten contract that early startup employees can see an exit like the founders.

It’s going to be much more difficult to get employees for early stage startups from here on out.

This has actually always been the case (Dan Luu's article from 2015 comes to mind), but, previously, it required doing a bit of actual math, and doing a bit of reading:

https://news.ycombinator.com/item?id=10758278 (2015 danluu.com/startup-tradeoffs)

This Windsurf employee #2 revelation of the 99% loss in value for employee stock, is simply a confirmation of an existing practice, just more visible and easier to reason about.

> My question is what happened to the $2.4B?

Paying debitors and investors?

100% employee bonuses

Firends who are windsurf employees tell me the in-office opinion is that the founder(s) were paid $.5bn each, and the rest was distributed amongst the researchers they poached.

_Huge_ payday if true.

> Google also licensed the Windsurf IP.

Exactly! That definitely means that the $82M ARR business and the tech behind it is definitely valuable to Google

Far more likely is that they needed to do this so that whoever does own windsurf at the end of this can’t sue Google on account of all the IP that the former employees walked off with.

this reminds me when early on in Github Copilot journey when people were asking "what if it accidentally reproduces GPL code and I get sued" and Microsoft said they'll cover the legal costs for anyone using Github Copilot.

The big players (Google, Microsoft, Meta, Nvidia) don't want ai startups failing. In fact they are terrified of that. Can you imagine the market shock if windsurf just went under in 1 year. How fearful all investors would be? How the whole market is gonna react? We are told that AI is basically a money printer. If you release a product for $20/month and a couple of months later other companies (with much better margins by definition) release competitor for $250 then $300 then $400 something is clearly not adding up even among the higher numbers.

The way VC investments work is that it's all very incestuous. Google, MS, etc. have lots of money in VC funded AI startups. Instead of letting them fail the hard way, they usually fail in a soft way via mergers, acquihires, etc.

Mostly when you read about a big company buying a small startup, it's actually an investor bail out. The company has technically failed and the investors basically want to get rid of the failing company in a way that doesn't make them look like muppets. So there's a nice press release, an undisclosed share swap, and tada another successful exit .. of a company and technology that you will never hear from again. This is nothing new. This is what happens to most startups that don't IPO.

Codium was alright a few years ago but by now it's a commodity. Amazing idea of having a little side bar in VS code with a bare bones chat UI that you could hookup to your openAI API key. They build bits and pieces of tech with some merit to it since then of course. But nothing that cannot and is not being replicated by others. Same with Cursor, windsurf and all the other niche players in this market. None of these companies has much of a moat.

And at this point all the big companies have their in house built solutions: Claude Code, Google has Julius, OpenAI has codex, MS has co-pilot, AWS recently launched their own thing. Clearly building these things is not that hard. All the IP is in the models and infrastructure.

So like crypto bubble with extra steps

Its the same people, so yes.

well the VCs, yeah.

But the M7 are doing some actual work. DeepMind is doing some projects that are changing the world for 10 years. Like their research in protein folding, general chemistry physics, biology, medicine.

protein folding has nothing to do with llm vaporware

Yep. And what happens next if Cursor goes under? I don't think the big ones let that happen, even though the business is not profitable.

See here: https://www.wheresyoured.at/ai-is-a-money-trap/

They might not have enough money to bail eachother.

Windsurf was just a recent rebrand of Codeium which was founded in 2021 and had plenty of enterprise customers using their self-hosted models well before they decided to make an IDE. I think this article is surprisingly thin on background.

Google/OpenAI are Dunder Mifflin and Windsurf is the Micheal Scott Paper Company

https://youtu.be/r-GFmH0EK9Y?si=8kWjzP1YdWVp6oAp

that was a gold comparision

If it is true that these wrapper companies can't find positive sum economies for their product offerings, there will be a point in time where we will see them fail and it will cause a domino effect, rolling over to the big LLM providers and ultimately NVDA. This is highly speculative, but currently there are some realistic pointers to such a scenario.

In such a case, I think we will see a move to smaller, domain specific models. I think if the first cycle of the AI age is large, general models, the second will be smaller, domain specific ones that we can run on retail machines.

I like how there’s like 17 instances of using square brackets as parentheses, but also actual parentheses, & almost nothing is capitalized, even acronyms, except for the cases where they feel like acronyms actually should be capitalized. and the .log file is a screenshot of cat-ing a .txt file which has formatting in it

> and the .log file is a screenshot of cat-ing a .txt file which has formatting in it

I guess replacing some bytes of text with 30KB of PNG is what happens when the platform you've chosen to use doesn't support the formatting you actually want.

Putting aside the model and researchers windsurf have, is the windsurf business model sound? If not, does potential acquirer think the business model can be adjusted within reasonable time to create value?

If the answer is no for the whole ecosystem, it’s going to be much harder to see acquisition of companies like this.

When I used to play Transport Tycoon Deluxe the most annoying were new companies which emerged every 6 months after I bought the last one. I had to buy them quickly because otherwise they would build their tracks and grow and later it would be harder to buy them...

Hmmm... I'm just saying things that are loosely related

The premise of this article seems to be that the researchers at Windsurf have been able to learn amazing things thanks to near unlimited VC money, increasing their value to astounding numbers.

That may be true (although I doubt the numbers add up). But what is keeping those researchers from walking away, or underperform whenever they feel like it? Giving them a lot of money surely isn't going to motivate them to work harder.

It's probably giving them access to one of the world's largest clusters of compute that lures them in.

> Giving them a lot of money surely isn't going to motivate them to work harder.

isnt that the reason we give ceos lots of money?

CEOs are given money to make them feel important.

They are given stock awards to encourage them to improve the value of the business.

How hard they work is irrelevant.

Retention bonuses maybe?

I think the most interesting question here is whether or not a "large" user base can be supported without running your own models eventually.

It makes sense that the answer is no.

I honestly think all of these VSCode forks are moving in the wrong direction. They are horseless carriages, old-style tools with AI stapled to the side. I'm trying to figure out what agentic coding should look like, and I built Crystal as an agent management platform first, IDE second.

https://github.com/stravu/crystal/

ugh.. why are you always plugging this stuff every thread.giving very desperate scammy vibes.

launching multiple claudes in gitworktrees is not that hard. i have like 25 line bash function that does all that stuff in your project without nasty electron stuff.

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Any headline that ends in a question mark can be answered by the word no. Specifically nothing in this case.