Google's Windsurf Deal: $2.4B Payout Splits & VC Returns
Weeks after Google’s $2.4 billion payment to Windsurf for technology licensing and the simultaneous hiring of its CEO and key talent, the implications of the deal continue to resonate across Silicon Valley, sparking debate among founders and startup employees.
According to sources familiar with the transaction, Google’s payment to Windsurf was effectively divided into two equal parts. One half, totaling $1.2 billion, was allocated to investors. The other $1.2 billion was structured as compensation packages for approximately 40 Windsurf employees hired by the tech giant, with a substantial portion of this sum reportedly going to the startup’s co-founders, Varun Mohan and Douglas Chen.
The deal proved highly favorable for Windsurf’s venture capital investors, which included prominent firms like Greenoaks, Kleiner Perkins, and General Catalyst. Windsurf had cumulatively raised about $243 million, with its last funding round in 2024 valuing the company at $1.25 billion. This means the overall return for investors was approximately four times their initial funding. Greenoaks, which led Windsurf’s seed and Series A financings and held a 20% stake, saw an estimated return of $500 million on its $65 million investment. Kleiner Perkins, the lead investor in Windsurf’s Series B round, reportedly achieved about three times its invested capital.
Google, Kleiner Perkins, and Greenoaks declined to comment on the matter. General Catalyst, Varun Mohan, and Douglas Chen did not respond to requests for comment. Despite the significant returns, some investors had reportedly aimed for an even more substantial outcome from the company.
This Google deal followed a period of complex negotiations for Windsurf, which was previously known as Codeium. In February, reports indicated that Kleiner Perkins was in discussions to lead a new funding round that would have valued the startup at $2.85 billion. However, that deal did not materialize. Instead, Windsurf had reportedly agreed to be acquired by OpenAI for $3 billion. When the OpenAI acquisition ultimately unraveled, Google stepped in with its unique offer, designed to secure Windsurf’s intellectual property and talent without a traditional stock acquisition.
What has particularly unsettled many in the tech community is the uneven distribution of benefits from the Google deal. While it was highly lucrative for Windsurf’s co-founders and venture capitalists, a large portion of the company’s approximately 250 employees did not directly benefit, especially after anticipating a payout from the prospective sale to OpenAI. In a typical acquisition, employees would receive compensation for their shares, often with accelerated vesting schedules. However, sources indicate that Windsurf employees hired within the last year received no payout from the Google transaction. This was especially jarring for the approximately 200 Windsurf employees who were not hired by Google.
Even for some of the employees Google did hire, despite attractive compensation and benefits, their existing stock grants were reportedly revoked, and their vesting timelines restarted. This meant they would have to wait an additional four years for their full payout in Google stock.
Adding to the controversy, Windsurf’s investors opted to leave over $100 million in capital with the remaining company entity. While one source stated this capital was entirely funded by the VCs, implying their total payout was closer to $1.1 billion, another source claimed the founders also contributed equally to this nest egg from the Google payment. There are conflicting views on whether this remaining capital would have been sufficient to pay all other employees at the Google deal’s per-share valuation. Some argue that an immediate distribution would have left the company with insufficient operating cash and no investors willing to fund a new raise, potentially forcing a shutdown given the departure of founders and key personnel. Conversely, others maintained that the company possessed enough capital to both compensate employees and continue operations.
The deal drew public criticism from some prominent figures in the venture capital community. Vinod Khosla, a well-known VC, publicly stated, “Windsurf and others are really bad examples of founders leaving their teams behind and not even sharing the proceeds with their team. I definitely would not work with their founders next time.”
Following a period of uncertainty after the Google announcement, Windsurf’s remaining entity, under the leadership of interim CEO Jeff Wang, was subsequently acquired by Cognition. While the precise terms of this sale were not disclosed, Cognition acquired Windsurf’s intellectual property and product, and crucially, brought on board all staff not hired by Google. According to a blog post published by Cognition, this acquisition ensured that every remaining employee financially gained from the sale. Two other sources estimated to TechCrunch that Cognition paid approximately $250 million to acquire Windsurf’s remaining assets and team. Cognition did not respond to a request for comment.