Theo - t3․gg: The Windsurf situation is pretty wild (RIP $3 billion?)

Remember Windsurf, the $3B VS Code fork nearly acquired by OpenAI? The deal fell through, but now Windsurf's CEO and key team members have joined Google DeepMind, while Windsurf remains independent. This shift reveals much about AI market dynamics and competition.

The AI talent market is fiercely competitive, with companies like Meta investing billions to poach top researchers and founders. This 'poaching season' reflects the high stakes in AI innovation and the critical value of experienced teams.

Early-stage equity in AI startups often can't be cashed out until acquisition or IPO. The failed OpenAI deal dashed many Windsurf stakeholders' expectations of lucrative exits, forcing a complex restructuring and licensing arrangement.

The OpenAI acquisition failed mainly due to Microsoft's existing deal with OpenAI, which grants Microsoft rights to all OpenAI IP until AGI is achieved. Acquiring Windsurf would have transferred its IP to Microsoft, making the deal valueless for OpenAI.

Anthropic's models excel at tool calls and coding tasks, making them popular with developers despite being slower and costlier. OpenAI and Google are racing to catch up by improving their models and developer ecosystems.

Google's licensing deal avoids antitrust risks of a full acquisition but still secures valuable IP and talent. Windsurf continues independently, focusing on enterprise clients, while Google advances its AI developer tooling ambitions.

Google stepped in, licensing Windsurf's technology and hiring key staff, including the CEO. They paid $2.4B for this license, not equity, allowing Windsurf to continue independently focusing on enterprise tools, while Google gains a foothold in AI developer tooling.

This unusual deal means Windsurf investors and employees receive cash returns despite the company's valuation dropping from $1.5B to under $100M due to the failed acquisition and staff departures. The license deal serves as compensation to avoid legal disputes.

Windsurf originally targeted enterprise developers using tools like JetBrains, while competitors like Cursor dominated the beginner to mid-level coding market. Windsurf struggled to balance these segments, impacting growth and profitability.

Google aims to strengthen its position in AI developer tools by integrating Windsurf's IP and team into DeepMind, focusing on the growing AI coding assistant market. This move counters OpenAI and Anthropic, who also compete for developer loyalty.

This saga highlights the complex interplay of IP rights, corporate partnerships, and market competition shaping the AI developer tools landscape, with major players vying to win developer adoption and influence.