Deal Closed in 72 Hours: AI Startup Hit Hard as Key Talent Moves for $2 Billion [Tech Talk]

Promising startups lose key talent in hours
Big Tech targets founders and core engineers, not full acquisitions
Early-stage startups struggle as ideas and teams are quickly poached

Alphabet's artificial intelligence (AI) subsidiary, Google DeepMind, signed a licensing agreement with AI coding startup Windsurf on July 13 (local time). The deal was valued at approximately $2.4 billion (about 3.3345 trillion won). Of this amount, $1 billion was for acquiring the license. The remaining $1.4 billion was paid as compensation to Windsurf's co-founders, Barun Mohan and Douglas Chen, as well as to key technical staff, in exchange for joining DeepMind.

The contract was finalized in just about 72 hours, and the founders and executives of Windsurf suddenly found themselves with significant financial rewards. With its core talent gone, Windsurf appointed former head of business Jeff Wang as interim CEO, but it was soon acquired by its competitor, Cognition. The journey of this high-growth startup, once considered a promising player in the AI industry, ended in just three days. Such events are now common in AI industry hubs like Silicon Valley in the United States and London in the United Kingdom, where startups lose their key talent to larger companies.

Promising Startup Loses Core Talent in Just 72 Hours

At the beginning of this year, Windsurf was on a path to success. It secured $150 million (about 208.3 billion won) in investment from General Catalyst, a major American venture capital firm, employed 250 staff members, and surpassed $100 million (about 139 billion won) in annual revenue. It was regarded as a leading contender in the field of AI-powered coding automation.

Barun Mohan, the founder of Windsurfing. Photo capture from X

In April, OpenAI expressed its intention to acquire Windsurf for $3 billion, but the deal fell through on July 11 after negotiations failed to progress before the deadline. Seizing the opportunity, DeepMind immediately signed a $2.4 billion agreement with Windsurf for licensing rights and to bring in key talent.

This type of agreement differs from a typical corporate merger or acquisition. Instead of acquiring all of a company’s staff, intellectual property (IP), assets, and liabilities, only the IP and key employees are brought over. This approach is much less expensive and far quicker than a full acquisition.

Microsoft’s (MS) deal with Inflection AI is another example of this strategy. Inflection AI, founded by British entrepreneur Mustafa Suleyman, a former DeepMind executive, attracted hundreds of millions of dollars in investment from its early days and drew significant industry attention. At one point, it was expected to become a rival to OpenAI. However, in March last year, MS signed a licensing agreement with Inflection AI and brought Suleyman onboard.

At the time, MS offered $600 million (about 83.35 billion won) for the licensing agreement and $30 million (about 4.16 billion won) as a transition bonus. Suleyman is now leading MS’s AI division, 'MS AI,' as CEO. With its key executives gone, Inflection has stepped back from the AI chatbot race and transformed into a company that only provides customized solutions for businesses.

Recently, Meta has also succeeded in acquiring key talent from startups. The company spent a staggering $15 billion (about 20 trillion won) to bring in Alexander Wang, founder of Scale AI. Meta is also aggressively recruiting, reportedly offering $100 million annual salaries to core engineers at Thinking Machines Lab (TML), founded by former OpenAI researcher Mira Murati. On the 13th, Anthropic, a rival to OpenAI, surprised the industry by hiring all three co-founders of the UK AI startup Humanloop.

"Is This Another Attempt to Circumvent Antitrust Laws?"

For Big Tech, this strategy offers the advantage of securing the best talent in the industry, but for startups, it is a devastating blow. Startups in their early stages often rely heavily on the ideas of their founders and key engineers. If only the core personnel are taken from such a small company, the remaining organization risks becoming an empty shell. Above all, this is a serious dilemma for venture capitalists (VCs) who have been evaluating the provisional market value of a startup based on the founder’s ideas and business model.

Big Tech.

Startups that lose talent to Big Tech experience various setbacks. Inflection AI, which had been developing the chatbot Pi to compete with ChatGPT, halted development after Suleyman’s departure. Both Scale AI and Windsurf had to undergo severe restructuring. Humanloop shut down, and Anthropic’s UK branch is now absorbing the remaining talent.

There is criticism that Big Tech’s talent acquisition from startups is a tactic to avoid fair competition. Already wielding monopolistic or oligopolistic power in the market, Big Tech companies are hesitant to pursue outright acquisitions due to regulatory scrutiny from competition authorities. Instead, critics argue, they are trying to keep high-growth startups in check by poaching their talent.

In fact, since July last year, the U.S. Senate has been calling for competition authorities to investigate Big Tech’s talent raids on startups. In an interview with the Associated Press, Democratic Senator Ron Wyden expressed concern, saying, "I worry that this may be an attempt to circumvent U.S. antitrust laws," and criticized, "Instead of competing through innovation, a handful of companies that already control the market are simply trying to buy up all the talent from other firms."