Even weeks after the revelation that Google paid Windsurf $2.4 billion to license its expertise, whereas concurrently hiring away its CEO and high expertise, the deal’s implications are nonetheless rattling some founders and startup workers throughout Silicon Valley.
Google’s fee to the startup was successfully cut up in two equal elements, in response to two folks conversant in the deal. Traders’ portion was $1.2 billion.
The opposite half was within the type of compensation packages for about 40 Windsurf workers employed by the tech large with a considerable portion of that $1.2 billion going to the startup’s co-founders, Varun Mohan and Douglas Chen, sources say.
The transaction was a superb end result for VCs, which included Greenoaks, Kleiner Perkins, and Normal Catalyst. Windsurf raised a complete of about $243 million as of its final increase in 2024 that valued the corporate at $1.25 billion, which implies the whole return to traders was about 4 instances their authentic funding.
Greenoaks, which led Windsurf’s seed and Sequence A financings and owned 20% of the corporate, returned about $500 million on their $65 million funding within the startup, in response to an individual conversant in the matter. Kleiner Perkins, which led Windsurf’s Sequence B, returned about thrice its invested capital, in response to one other particular person conversant in the deal.
Google, Kleiner Perkins, and Greenoaks declined to remark. Normal Catalyst, Varun Mohan, and Douglad Chen didn’t reply to a request for remark.
Even so, most traders had been aiming for a extra vital win from the corporate.
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In February, TechCrunch reported that Kleiner Perkins was in talks to guide a contemporary spherical of funding valuing the startup, which was then often called Codeium, at a $2.85 billion valuation. That deal didn’t occur, in response to an individual conversant in the matter, as a result of Windsurf had as an alternative agreed to be bought by OpenAI for $3 billion.
As everyone knows now, the OpenAI acquisition unraveled and Google swooped in with its deal structured to supply investor returns, receive expertise and IP with out buying inventory.
However what’s rattling the Valley is that this: whereas Google’s deal was good for the co-founders and VCs, it didn’t profit a big portion of Windsurf’s roughly 250 workers, particularly after they had been anticipating a payout from the sale to OpenAI.
In a typical acquisition, workers would get cash for the shares they owned, and infrequently have their vesting schedule accelerated. Nonetheless, Windsurf workers who had been employed during the last 12 months didn’t obtain a payout from the deal, these folks stated.
The Google deal was particularly unsettling to roughly 200 Windsurf workers not employed by the search large.
As an alternative of siphoning each penny of Google’s fee into their very own pockets, traders opted to go away the corporate with over $100 million in capital.
One supply says this was totally funded by VCs, which means their complete payout was about $1.1 billion. Nonetheless, one other particular person stated that the founders’ equally chipped in to go away the corporate with a nest egg from the Google fee.
A number of folks stated that the cash left for the corporate would have been adequate to pay all remaining workers proceeds at Google deal’s per-share valuation, no matter how lengthy they’d been with the corporate. Nonetheless, to have performed that instantly would have been problematic, leaving the corporate with much less money to function and – with founders, key folks gone – with no traders able to finance a brand new increase. The remaining management would seemingly have needed to shut down after making such money distributions, one of many folks stated. In the meantime, one other particular person claimed that the corporate had sufficient capital to pay out workers and proceed to function.
That distinction of opinion is barely a part of the rationale the deal turned so controversial.
What’s extra, at the very least among the workers Google did rent, regardless of enticing pay and advantages, noticed their inventory grants revoked and their vesting timelines restarted. That meant they’d have to attend an extra 4 years for his or her complete payout in Google inventory, in response to folks conversant in the deal.
Some high VC condemned the three-year-old startup’s co-founders for not sharing their windfall with all of the individuals who helped construct the corporate.
“Windsurf and others are actually dangerous examples of founders leaving their groups behind and never even sharing the proceeds with their staff,” wrote Vinod Khosla on X. “I undoubtedly wouldn’t work with their founders subsequent time.”
After a number of days of limbo following the announcement of the Google deal, Windsurf’s remaining entity, beneath the management of interim CEO Jeff Wang, managed to promote itself to Cognition.
Cognition acquired Windsurf’s IP and product, and introduced on all employees not employed by Google.
Whereas the precise deal phrases of that sale had been no’t disclosed, the acquisition allowed each worker to financially acquire from the sale, in response to a weblog revealed by Cognition.
Two different sources estimated to TechCrunch that Cognition paid $250 million to accumulate Windsurf’s remaining entity.
Cognition didn’t reply to a request for remark.
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