Windsurf’s CEO goes to Google; OpenAI’s acquisition falls apart

In a significant development reshaping the artificial intelligence landscape, OpenAI’s highly anticipated $3 billion acquisition of Windsurf, the rapidly growing AI coding startup, reportedly collapsed on Friday. This turn of events has sent ripples through the industry, with a surprising new direction for Windsurf’s leadership.

The deal’s unraveling, initially reported by The Verge, was quickly followed by news that Google DeepMind has successfully recruited Windsurf’s CEO, Varun Mohan, co-founder Douglas Chen, and several of the startup’s top researchers. A Google spokesperson confirmed these strategic hires in a statement to TechCrunch, signaling Google’s aggressive push to bolster its AI coding capabilities.

Notably, Google’s engagement with Windsurf does not involve an outright acquisition or a stake in the company. Instead, Google has secured a non-exclusive license to specific Windsurf technologies. This arrangement allows the AI coding startup to continue licensing its innovations to other entities, maintaining its independence. Bloomberg further elaborated on the financial aspects, reporting that Google is investing an estimated $2.4 billion to license Windsurf’s technology and bring its key talent into the DeepMind fold.

“We’re excited to welcome some top AI coding talent from Windsurf’s team to Google DeepMind to advance our work in agentic coding,” stated Chris Pappas, a Google spokesperson, in an email to TechCrunch.

This move by Google exemplifies a growing trend in the AI ecosystem: the “reverse-acquihire.” Unlike traditional acquisitions, these deals involve hiring a startup’s top talent and licensing its technology without a full company takeover. This strategy has gained traction among tech giants, including Google (which previously rehired Character.AI CEO Noam Shazeer) and Microsoft (which brought in Inflection founders to lead a new consumer AI division). Such approaches allow these companies to enhance their positions in the fiercely competitive AI race while sidestepping potential regulatory scrutiny associated with large-scale mergers.

Varun Mohan and Douglas Chen, in a joint statement to TechCrunch, expressed their enthusiasm for the transition: “We are excited to be joining Google DeepMind along with some of the Windsurf team. We are proud of what Windsurf has built over the last four years and are excited to see it move forward with their world class team and kick-start the next phase.”

Meanwhile, Windsurf itself faces an uncertain but determined path forward. Jeff Wang, previously the head of business, has stepped in as the startup’s interim CEO, a move he announced via social media. The majority of Windsurf’s 250-person team is not joining Google DeepMind and will continue to focus on delivering its AI coding tools to enterprise customers. The appointment was also welcomed by Logan Kilpatrick of OpenAI, who tweeted a welcome message to Mohan and the Windsurf team.

The failed Windsurf acquisition by OpenAI was reportedly a significant point of contention in OpenAI’s ongoing contract renegotiations with Microsoft. According to the Wall Street Journal, OpenAI was hesitant to grant Microsoft, its largest backer, access to Windsurf’s valuable AI coding technology, given Microsoft’s existing access to all of OpenAI’s intellectual property. Fortune had reported earlier on Friday that the exclusivity period for OpenAI’s acquisition offer had expired, effectively opening the door for Windsurf to explore other proposals – a window Google seemingly capitalized on without delay.

Windsurf had rapidly emerged as one of the most sought-after AI coding startups. TechCrunch previously reported its Annual Recurring Revenue (ARR) soaring to approximately $100 million in April, a substantial leap from roughly $40 million just months prior. This explosive growth undoubtedly attracted considerable interest from industry leaders like OpenAI and, ultimately, Google.

The integration of Mohan, Chen, and other Windsurf talents is poised to significantly amplify Google’s capabilities in developing sophisticated AI coding tools. As AI model providers increasingly focus on offering specialized AI coding applications to attract developers, this strategic hire positions Google favorably. Competitors like Anthropic have seen substantial revenue gains from tools such as Claude Code, while OpenAI continues to advance its AI coding agent, Codex.

For Windsurf, however, the departure of its top leadership places it in a precarious position. History shows that AI startups whose key leaders are hired away often struggle to maintain their initial momentum. Examples include Scale AI, which saw customer attrition following its deal with Meta, and Inflection, which had to fundamentally pivot its business model after its collaboration with Microsoft. It is plausible that Windsurf could encounter similar challenges in the wake of this seismic shift.