Google Finalizes $2.4 Billion Deal with AI Startup Windsurf After OpenAI Talks Collapse

Alphabet Inc., the parent company of Google, has signed a $2.4 billion deal with artificial intelligence startup Windsurf (officially known as Exafunction Inc.), securing key executive hires and licensing rights to its AI technology. The agreement follows the collapse of earlier acquisition talks between Windsurf and OpenAI.

As part of the deal, Windsurf CEO Varun Mohan, co-founder Douglas Chen, and several employees will join Google's DeepMind AI unit. The move marks another strategic acquisition of talent and intellectual property by a tech giant seeking to stay ahead in the AI arms race.

Windsurf was previously close to sealing a $3 billion deal with OpenAI. However, negotiations fell through amid friction over Microsoft’s involvement. As a major OpenAI backer, Microsoft sought access to Windsurf’s IP—a condition the startup declined. The disagreement contributed to OpenAI’s failure to finalize the acquisition, despite signing a letter of intent and preparing payout agreements for Windsurf investors.

Following the expiration of OpenAI’s exclusivity period, Windsurf reopened talks with other suitors, eventually accepting Google’s offer. The acquisition of personnel and technology—without a full company buyout—mirrors recent moves by Microsoft, Amazon, and Google to bypass potential antitrust scrutiny. In 2024, Microsoft onboarded most of Inflection AI’s team; Amazon and Google similarly absorbed executives from Adept AI Labs and Character.AI, respectively.

Founded in 2021, Windsurf specializes in AI-powered coding assistants capable of generating software code from natural language input. It has raised over $200 million in venture funding and is considered one of the more promising startups in the generative AI space.

While regulators are now examining the legality of such “talent and tech” deals, Alphabet’s agreement with Windsurf reinforces its commitment to building next-gen AI capabilities through strategic partnerships rather than traditional acquisitions.