In the high-stakes war for AI talent, you never know which way the wind will blow next.
OpenAI had reportedly been in talks to acquire AI coding platform Windsurf when Google stormed in to hire away the startup’s top talent and secure nonexclusive licensing rights to some of Windsurf’s assets. Then Cognition, the AI startup behind coding agent Devin, announced a deal to buy up the rest of Windsurf.
The episode is the latest in a string of reverse-acquihire-style deals that have become fashionable in the AI space. A Big Tech company will peel off top employees from a startup and license rights to some tech assets, while stopping short of an outright acquisition. Some examples include Microsoft and Inflection, Google and Character.ai, Meta and Scale, and Amazon and Adept.
Legal loophole: These types of deals notably sidestep the traditional merger review process, which might have been especially attractive under the Biden administration’s heightened antitrust enforcement.
But the Newcomer newsletter pointed out that these deals have another advantage that could explain why they’ve lived on into a new administration: expediency. In a breakneck AI development race where every week counts, absorbing startups this way allows for much quicker integration than a traditional acquisition.
“We note this deal mirrors the increasing[ly] popular partnership structure between large technology companies and some fast-rising GenAI startups that upgrades talent and provides access to key new GenAI products, without facing the scrutiny of equity ownership or acquisition,” Colin Sebastian, senior research analyst at financial firm Baird, wrote in a research note.
Hiring risks: While Cognition ended up purchasing the remains of Windsurf, there were a couple of days when it seemed that remaining employees might be left in the shell of a company without the usual trappings of a startup exit.
The situation raises the question: If there’s a chance that a startup’s founders and other top employees might jump ship en masse, does that change the incentive math for tech pros considering working at one?
Rudy Torrijos, PitchBook’s director of industry research, told Tech Brew this particular deal was the result of a one-of-a-kind situation that’s not likely to become commonplace. However, it could lead venture capitalists and startup leadership to carefully consider internal structures and ensure that incentives are aligned for companies.
“This will likely prove to be a rare occurrence and was likely due to very unique circumstances,” Torrijos said in an email. “However, this event is likely to spur VCs and startup boards to review founder [and] CEO compensation or employment agreements and make sure leadership interests are aligned with investors and employees more explicitly and transparently.”
Putting structures in place that discourage founders from abandoning teams is especially important in times of major transformation in the tech industry, Torrijos said.
“In times of significant platform changes, like during the rise of the PC and the dot-com era, leadership matters most, suggesting that VCs and startup boards will likely add provisions, incentives, or disincentives for abrupt CEO departures,” Torrijos said.
Talent tiff: The episode also shows just how heated the battle over top AI talent has become among leading AI companies. At a time when Meta has been offering OpenAI researchers up to $100 million pay packages, big-name AI researchers are currently among the most in-demand resources in the AI race.
“Larger companies are desperate to hire anyone with raw talent or extraordinary experience,” Torrijos said. “Advanced technical talent has always been hard to find.”