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What the Windsurf sale means for the AI coding ecosystem

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Re: What the Windsurf sale means for the AI coding ecosystem

#11

Post by jillesvangurp »

eddythompson80 wrote: post #5

this reminds me when early on in Github Copilot journey when people were asking "what if it accidentally reproduces GPL code and I get sued" and Microsoft said they'll cover the legal costs for anyone using Github Copilot. The big players (Google, Microsoft, Meta, Nvidia) don't want ai startups failing. In fact they are terrified of that. Can you imagine the market shock if windsurf just went under in 1 year. How fea…

The way VC investments work is that it's all very incestuous. Google, MS, etc. have lots of money in VC funded AI startups. Instead of letting them fail the hard way, they usually fail in a soft way via mergers, acquihires, etc.

Mostly when you read about a big company buying a small startup, it's actually an investor bail out. The company has technically failed and the investors basically want to get rid of the failing company in a way that doesn't make them look like muppets. So there's a nice press release, an undisclosed share swap, and tada another successful exit .. of a company and technology that you will never hear from again. This is nothing new. This is what happens to most startups that don't IPO.

Codium was alright a few years ago but by now it's a commodity. Amazing idea of having a little side bar in VS code with a bare bones chat UI that you could hookup to your openAI API key. They build bits and pieces of tech with some merit to it since then of course. But nothing that cannot and is not being replicated by others. Same with Cursor, windsurf and all the other niche players in this market. None of these companies has much of a moat.

And at this point all the big companies have their in house built solutions: Claude Code, Google has Julius, OpenAI has codex, MS has co-pilot, AWS recently launched their own thing. Clearly building these things is not that hard. All the IP is in the models and infrastructure.

Re: What the Windsurf sale means for the AI coding ecosystem

#12

Post by k1t »

trashtensor wrote: post #10
smokel wrote: post #4

The premise of this article seems to be that the researchers at Windsurf have been able to learn amazing things thanks to near unlimited VC money, increasing their value to astounding numbers. That may be true (although I doubt the numbers add up). But what is keeping those researchers from walking away, or underperform whenever they feel like it? Giving them a lot of money surely isn't going to motivate them to work…

> Giving them a lot of money surely isn't going to motivate them to work harder. isnt that the reason we give ceos lots of money?

CEOs are given money to make them feel important.

They are given stock awards to encourage them to improve the value of the business.

How hard they work is irrelevant.

Re: What the Windsurf sale means for the AI coding ecosystem

#14

Post by jcdentonn »

pimeys wrote: post #8
eddythompson80 wrote: post #5

this reminds me when early on in Github Copilot journey when people were asking "what if it accidentally reproduces GPL code and I get sued" and Microsoft said they'll cover the legal costs for anyone using Github Copilot. The big players (Google, Microsoft, Meta, Nvidia) don't want ai startups failing. In fact they are terrified of that. Can you imagine the market shock if windsurf just went under in 1 year. How fea…

Yep. And what happens next if Cursor goes under? I don't think the big ones let that happen, even though the business is not profitable.

See here: https://www.wheresyoured.at/ai-is-a-money-trap/

They might not have enough money to bail eachother.

Re: What the Windsurf sale means for the AI coding ecosystem

#15

Post by CalChris »

jampa wrote: post #7
CalChris wrote: post #2

openai's $3b acquisition of windsurf falls apart. after months of negotiations, they walk away. That isn't accurate. Microsoft was an OpenAI investor and had rights and for MS reasons, exercised them. That's what killed the deal. google announces they're paying $2.4b to hire windsurf's ceo and 41 researchers for deepmind. not to acquire windsurf. just the humans. the same day openai walks. what a coincidence! That is…

> My question is what happened to the $2.4B We don't know what deal they made with the VCs, but they could have multiple liquidation preference agreements. > A liquidation preference multiple (e.g., 1x, 2x) determines how much investors receive before any distribution to common shareholders. A 2x preference means investors are entitled to twice their initial investment amount before others receive payouts.

So Google writes a check for $2.4B to Windsurf and gets the IP. Check deposited with Windsurf. Ledger entries made. Windsurf now has $2.4B in assets more than it had before. Money in the bank. Preference cliffs do not apply to this licensing deal. Key employees and CEO then take a 2.4 mile hike over to Google. Lunch is served.

Then Cognition offers $250M for Windsurf itself. Ok, I can imagine the preference cliffs kicking in now. But Windsurf just got a check for $2.4B and I don't think they had anywhere close to that in liabilities.

So where'd the $2.4B go? This seems like a strange deal.

Re: What the Windsurf sale means for the AI coding ecosystem

#16

Post by ankit219 »

This is a highly speculative post, with conjectures presented as facts. Some things that irked me:

- Cursor did not hire Anthropic's "researchers". It hired the guys who built Claude code (PM and dev). Who then promptly went back to Anthropic in 14 days. A researcher for Cursor need not come from Anthropic either. One high profile recruit for them was Jack Gallagher (Midjourney) who is probably one of the best at RL.

- Google's deal with Windsurf is structured that way because they likely could not directly acquire, or were not confident that it would have gotten past the antitrust. A signal for that is such deal increased in last few years after FTC refused to allow any deal over $100M or so. Microsoft has done such deals too. Meta would have acquired scale ai in older times. Not sure with Openai, but they arent as scrutinized as Google for such deals. To imply that this means Google did not care about ARR is not justified. and then google licensed Windsurf's IP too.

- Openai's agreements with Microsoft is more probable than they did not complete the acquisition because of negative gross margins.

- Plus, the old adage about how a growing startup is worth more because of a stellar team. You strip a team away and still get 2x multiple is sure enough valuing the current ARR highly.

I thought the userbase is valuable. A sale at this point made sense because they might not have been to get the money if they waited a year. Reasons laid out in the article are not why I think so.

Re: What the Windsurf sale means for the AI coding ecosystem

#17

Post by rohansood15 »

CalChris wrote: post #15
jampa wrote: post #7

Earlier quoted context omitted.

> My question is what happened to the $2.4B We don't know what deal they made with the VCs, but they could have multiple liquidation preference agreements. > A liquidation preference multiple (e.g., 1x, 2x) determines how much investors receive before any distribution to common shareholders. A 2x preference means investors are entitled to twice their initial investment amount before others receive payouts.

So Google writes a check for $2.4B to Windsurf and gets the IP. Check deposited with Windsurf. Ledger entries made. Windsurf now has $2.4B in assets more than it had before. Money in the bank. Preference cliffs do not apply to this licensing deal. Key employees and CEO then take a 2.4 mile hike over to Google. Lunch is served. Then Cognition offers $250M for Windsurf itself. Ok, I can imagine the preference cliffs ki…

1.2B went to investors, the remaining 1.2B was actually an incentive/payout for the founders/employees that google took. The company basically has whatever money it had in the bank, plus a bit more from Google - but no investor liabilities.

Re: What the Windsurf sale means for the AI coding ecosystem

#19

Post by krat0sprakhar »

CalChris wrote: post #2

openai's $3b acquisition of windsurf falls apart. after months of negotiations, they walk away. That isn't accurate. Microsoft was an OpenAI investor and had rights and for MS reasons, exercised them. That's what killed the deal. google announces they're paying $2.4b to hire windsurf's ceo and 41 researchers for deepmind. not to acquire windsurf. just the humans. the same day openai walks. what a coincidence! That is…

> Google also licensed the Windsurf IP.

Exactly! That definitely means that the $82M ARR business and the tech behind it is definitely valuable to Google

Re: What the Windsurf sale means for the AI coding ecosystem

#20

Post by p0w3n3d »

When I used to play Transport Tycoon Deluxe the most annoying were new companies which emerged every 6 months after I bought the last one. I had to buy them quickly because otherwise they would build their tracks and grow and later it would be harder to buy them...

Hmmm... I'm just saying things that are loosely related

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