VCs and founders profited from Windsurf Google deal, new report reveals

Weeks after the news broke about Google's $2.4 billion deal to license Windsurf's technology while also hiring its CEO and key staff, the fallout continues to unsettle founders and startup employees across Silicon Valley.

According to two sources familiar with the terms, Google's payment was split evenly into two parts. Investors received $1.2 billion.

The other $1.2 billion was allocated as compensation packages for roughly 40 Windsurf employees hired by Google, with a significant share going to co-founders Varun Mohan and Douglas Chen.

The transaction proved lucrative for venture capital firms like Greenoaks, Kleiner Perkins, and General Catalyst. Having raised approximately $243 million, with a 2024 valuation of $1.25 billion, investors saw a return of about four times their initial investment.

Greenoaks, which led the seed and Series A rounds and held a 20% stake, reportedly turned a $65 million investment into about $500 million. Kleiner Perkins, leading the Series B, is said to have tripled its investment.

Google, Kleiner Perkins, and Greenoaks declined to comment. General Catalyst and co-founders Mohan and Chen did not respond to requests for comment.

Despite the substantial returns, many investors had anticipated an even larger exit for the company.

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In February, TechCrunch reported that Kleiner Perkins was negotiating to lead a new funding round valuing the startup, then called Codeium, at $2.85 billion. That deal fell through, a source says, because Windsurf had agreed to a $3 billion acquisition by OpenAI instead.

When the OpenAI deal collapsed, Google stepped in with a structure designed to provide investor returns and secure talent and intellectual property without a traditional stock acquisition.

The unsettling aspect for Silicon Valley is this: while the deal benefited the co-founders and VCs, it left most of Windsurf's roughly 250 employees without a windfall, especially after they had expected a payout from the OpenAI sale.

In a standard acquisition, employees would cash out their shares and often see accelerated vesting. However, according to sources, Windsurf employees hired in the past year received no payout from the Google deal.

The situation was particularly difficult for the approximately 200 employees not hired by Google.

Rather than taking the full Google payment, investors chose to leave over $100 million in capital within the company.

One source states this was entirely funded by the VCs, reducing their total payout to about $1.1 billion. Another source claims the founders also contributed to leave this reserve from the Google payment.

Multiple sources indicated this reserved capital could have been used to pay all remaining employees based on the deal's per-share value. However, an immediate payout would have drained operating funds and, with founders and key people gone, left the company unfundable, potentially forcing a shutdown. Another person contended the company had enough to pay employees and continue operations.

This disagreement is just one reason the deal became so contentious.

Furthermore, some of the employees Google did hire, despite attractive offers, had their stock grants canceled and their vesting schedules reset, meaning a four-year wait for their full Google stock payout.

Prominent VCs criticized the three-year-old startup's co-founders for not sharing their gains with the team that helped build the company.

"Windsurf and others are really bad examples of founders leaving their teams behind and not even sharing the proceeds with their team," Vinod Khosla wrote on X. "I definitely would not work with their founders next time."

After a period of uncertainty following the Google deal, Windsurf's remaining assets, led by interim CEO Jeff Wang, were sold to Cognition.

Cognition acquired Windsurf's intellectual property, product, and all staff not hired by Google.

While exact terms were not disclosed, Cognition stated in a blog post that the acquisition provided financial benefit for every employee.

Two other sources estimated to TechCrunch that Cognition paid around $250 million for Windsurf's remaining entity.

Cognition did not respond to a request for comment.