Windsurf VCS and Founders Google Deal Payments Revealed

Google's Windsurf Acquisition: Ripples Through Silicon Valley

The recent disclosure of Google’s $2.4 billion acquisition of Windsurf, coupled with the simultaneous recruitment of its CEO and key personnel, continues to generate discussion among founders and employees throughout Silicon Valley.

Financial Breakdown of the Deal

The total payment made by Google to Windsurf was effectively divided into two equal portions, as indicated by sources close to the transaction. Approximately $1.2 billion was allocated to the investors involved.

The remaining $1.2 billion was distributed as compensation to roughly 40 Windsurf employees who were hired by Google. A significant portion of this sum went to the startup’s co-founders, Varun Mohan and Douglas Chen, according to insider information.

Investor Returns

The outcome proved beneficial for venture capital firms, including Greenoaks, Kleiner Perkins, and General Catalyst. Windsurf had previously secured approximately $243 million in funding, with its last valuation in 2024 reaching $1.25 billion.

This resulted in an overall return of about 4x the initial investment for investors. Greenoaks, having led the seed and Series A funding rounds with a 20% stake, reportedly realized a return of around $500 million on its $65 million investment.

Kleiner Perkins, which spearheaded Windsurf’s Series B funding, saw a return of approximately 3x its invested capital. Google, Kleiner Perkins, and Greenoaks all declined to provide comment on the matter.

General Catalyst, Varun Mohan, and Douglas Chen did not respond to requests for comment.

Initial Expectations and the OpenAI Deal

Despite the positive returns, many investors had anticipated a larger payout from the company. Prior to the Google acquisition, Kleiner Perkins was reportedly in discussions to lead a new funding round, potentially valuing Windsurf (formerly known as Codeium) at $2.85 billion.

However, this deal was superseded when Windsurf agreed to be acquired by OpenAI for $3 billion. This acquisition ultimately fell through, paving the way for Google’s intervention.

Google structured its deal to secure talent and intellectual property without directly acquiring company stock, while still providing returns to investors.

Concerns Regarding Employee Compensation

A significant point of contention revolves around the fact that the Google deal did not substantially benefit a large segment of Windsurf’s approximately 250 employees, particularly those who had expected a payout from the prospective OpenAI sale.

Typically, in an acquisition, employees receive funds for their shares and often experience an acceleration of their vesting schedules. However, employees hired within the past year were not included in the payout from the Google transaction.

The situation was particularly unsettling for the roughly 200 Windsurf employees who were not hired by Google.

Funds Retained by the Company

Instead of distributing the entirety of Google’s payment, investors chose to retain over $100 million within the company. Sources indicate this was primarily funded by venture capital firms, resulting in a total payout of approximately $1.1 billion to investors.

Alternative accounts suggest that the founders also contributed to establishing a financial reserve for the company from the Google payment.

Some believe the retained funds were sufficient to compensate all remaining employees based on the per-share valuation of the Google deal, regardless of their tenure. However, concerns arose that immediate distribution would deplete the company’s cash reserves and, without the founders and key personnel, deter further investment.

Others contend that the company possessed adequate capital to both compensate employees and continue operations.

Stock Grant Revisions and Founder Criticism

Adding to the controversy, some Google-hired employees reportedly had their stock grants revoked and their vesting timelines reset, requiring them to wait an additional four years for full payout in Google stock.

Several prominent VCs publicly criticized Windsurf’s co-founders for not sharing the financial windfall with all those who contributed to the company’s success.

Vinod Khosla, on X, stated that Windsurf and similar cases represent “bad examples of founders leaving their teams behind and not even sharing the proceeds with their team,” adding he would avoid working with those founders in the future.

Sale to Cognition and Resolution

Following a period of uncertainty, Windsurf’s remaining assets, under the interim leadership of Jeff Wang, were sold to Cognition.

Cognition acquired Windsurf’s intellectual property and product, and extended employment offers to all staff not recruited by Google.

According to a blog post published by Cognition, the acquisition enabled all employees to receive financial benefits. Sources estimate that Cognition paid approximately $250 million for Windsurf’s remaining entity. Cognition did not respond to a request for comment.

This final transaction provided a resolution, ensuring that all Windsurf employees ultimately benefited from the company’s journey.