OpenAI’s $3 billion deal with AI coding startup Windsurf collapses, as Google swoops in for licensing deal

The deal with Google means that Windsurf will continue to operate as an independent startup while key members of the team join Google, a source familiar with the matter told Fortune.

“We’re excited to welcome some top AI coding talent from Windsurf’s team to Google DeepMind to advance our work in agentic coding,” a Google spokesperson told Fortune in an emailed statement. The email also contained a statement from Windsurf founders Varun Mohan and Douglas Chen saying “We are excited to be joining Google DeepMind along with some of the Windsurf team.”

The news represents a setback for ChatGPT-maker OpenAI and comes as the generative AI startup has suffered talent raids from rivals like Meta. An OpenAI spokesperson confirmed to Fortune that the exclusivity period for the $3 billion acquisition deal with Windsurf, entered into in May, had expired, leaving Windsurf free to pursue other options.

AI coding startups, which use generative AI to assist programmers in writing code, have become one of the hottest categories in tech. Microsoft’s GitHub Copilot, built on OpenAI’s technology, has gained widespread adoption. In addition, Cursor, a startup backed by VCs like Thrive Capital, Accel, and Andreessen Horowitz, recently raised a $900 million Series C, hitting a $9 billion valuation.

Prior to making its bid for Windsurf, OpenAI had approached Anysphere about acquiring Cursor—but these discussions fell through as the startup wasn’t interested in being bought “even by OpenAI,” according to a report in TechCrunch.

Founded in 2021 by MIT classmates, and initially called Codeium, the startup changed its name to Windsurf in April, shortly before the OpenAI offer. The startup’s investors include Founders Fund, General Catalyst, Greenoaks, and Kleiner Perkins. TechCrunch reported in February that Windsurf was raising a funding round at a $2.85 billion valuation.