OpenAI’s $3 billion deal to acquire Windsurf, one of the fastest-growing AI coding startups, has unexpectedly collapsed. The Verge first reported the news on Friday, noting that Google DeepMind has stepped in to hire Windsurf’s CEO Varun Mohan, co-founder Douglas Chen, and a group of its top engineers. While Google is not acquiring the company outright, it has struck a major licensing deal reportedly worth $2.4 billion, with access to Windsurf’s technology and talent.
In a statement, Google confirmed that Windsurf’s key figures are joining DeepMind to strengthen its focus on “agentic coding,” an area of AI that builds more autonomous software development tools. Despite losing much of its leadership team, Windsurf is continuing as a company, with Jeff Wang stepping in as interim CEO. He announced in a post on social media. Around 250 employees remain, and the startup says it will continue providing its AI coding products to enterprise clients.
This type of deal, known as a reverse-acquihire, has become more common in the AI industry. Big Tech firms like Google and Microsoft are increasingly hiring founders and key technical staff while licensing technology, allowing them to sidestep full acquisitions, which often face regulatory hurdles. Similar moves have included Microsoft’s deal with Mustafa Suleyman and Google’s hiring of Character.AI’s CEO, Noam Shazeer.
The breakdown of the OpenAI deal has also reportedly caused internal friction with Microsoft, which is OpenAI’s largest investor and already has access to its full IP. OpenAI was reluctant to let Microsoft gain influence over Windsurf’s technology as well, which may have contributed to the deal falling through. The expiration of the exclusivity period gave Windsurf the option to explore other offers, and it appears the startup moved quickly to secure an agreement with Google.
While Google may benefit from this move, the future of Windsurf is less certain. Startups that have lost their top leaders in similar deals have often struggled to maintain their early momentum. Though Windsurf saw explosive growth earlier this year, reaching $100 million in annual recurring revenue by April, it now faces the challenge of sustaining that pace without the team that helped build it.
