July 17, 2025 • 26 mins
Windsurf has had a tumultuous few weeks. The AI Coding startup's $3 billion acquisition by OpenAI fell through, leaving its 250 employees in turmoil.
We discuss the tension between corporate ambitions and employee welfare, spotlighting the ethical dilemmas in the tech industry.
Following the drama, Cognition steps in to acquire Windsurf's assets, providing remaining employees with a second chance. Tune in for key insights on corporate responsibility and the harsh realities of startup life.
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TIMESTAMPS
00:00 Setting The Stage
03:55 How Does It Work?
08:24 The $3 Billion Dollar Rug Pull
11:48 What Led To This
14:47 Why Are They Worth SO MUCH?
18:50 New Acquisition!
21:53 Who Really Wins Here?
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RESOURCES
Josh: https://x.com/Josh_Kale
Ejaaz:https://x.com/cryptopunk7213
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Not financial or tax advice. See our investment disclosures here:
https://www.bankless.com/disclosures
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Ejaaz:
So there's this company called windsurf which in (00:02):
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Ejaaz: the last 24 hours got stolen from open ai (00:05):
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Ejaaz: and sold not once but twice for (00:08):
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Ejaaz: over 3 billion dollars and then (00:12):
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Ejaaz: everyone lost their minds completely when they realized that (00:15):
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Ejaaz: two of the co-founders were taking almost all of that money (00:18):
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Ejaaz: for themselves and leaving the rest of the (00:21):
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Ejaaz: company 250 employees in the (00:23):
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Ejaaz: dust and as you can imagine josh this sparked a lot of outrage online but it (00:26):
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Ejaaz: did end up having a fairy tale ending when another company swooped in and bought (00:32):
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Ejaaz: the rest of the company and the 250 employees got paid josh i'm exhausted can (00:37):
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Ejaaz: you tell me what's happening well (00:42):
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Josh: I'm actually not sure myself this feels like an episode out of like a sitcom (00:44):
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Josh: or a silicon valley episode where there's so much drama so many twists and turns (00:47):
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Josh: that seemingly don't make any sense i mean it was. (00:52):
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Ejaaz: Acquired i have a fun anecdote for you josh actually the office that the windsurf (00:54):
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Ejaaz: company was set up in guess no (00:58):
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Josh: Not silicon valley, (01:02):
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Josh: oh man it's so real silicon valley was such a testament at the. (01:06):
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Ejaaz: Time so i swear they (01:09):
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Josh: Were they were ahead of the curve but yeah i i'm actually i'm excited to record (01:10):
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Josh: this episode because i need you to explain to me a lot of what's happening i (01:14):
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Josh: don't know too much about the recent news i've been very much in in the grok (01:17):
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Josh: rabbit hole i know a lot of the earlier topics maybe i could help set the stage before we get into it. (01:21):
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Josh: So for people who aren't familiar, Windsurf was not always Windsurf. (01:26):
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Josh: It was a company that was founded in 2021 called Exifunction. (01:29):
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Josh: And it was founded by two MIT graduates initially focused on GPU optimization. (01:33):
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Josh: So they were a GPU optimizer company. (01:37):
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Josh: They were doing absolutely nothing relative to what they're doing today. (01:39):
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Josh: Three years later, they raised a series C round at $150 million, (01:43):
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Josh: which valued them unicorn status, one and a quarter billion dollars. (01:46):
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Josh: And that was when they rebranded to Windsurf. And Windsurf was not a GPU optimization (01:50):
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Josh: company. It was instead the company that we all know today, which is the AI (01:55):
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Josh: coding companion, cursor competitor, vibe coding extraordinaire. (01:59):
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Josh: Exactly. Yeah. So that's when they kind of came into their final form, (02:04):
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Josh: which was only last year. (02:07):
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Josh: So the first three years of operation, this like strange company trying to figure (02:09):
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Josh: it out last year, it was huge. (02:14):
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Josh: And then we get into 2025 where their annual revenue went from not a lot to (02:15):
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Josh: a hundred million plus. And I think this is where I'm going to hand it off to (02:19):
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Josh: you because things got crazy. (02:22):
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Josh: They turned into a really big company. They started collecting valuable data. (02:23):
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Josh: Their revenue went through the roof into the nine figures. (02:26):
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Josh: And that's where this drama begins. (02:29):
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Ejaaz: So Josh, do you remember around that time, it became a kind of trending narrative that AI... (02:32):
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Ejaaz: Coding or coders was going to replace software engineers. So companies were (02:39):
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Ejaaz: getting really nervous and software engineers were getting really nervous because (02:43):
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Ejaaz: they were kind of like consistently held in as like the highest regard of employee, right? (02:46):
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Ejaaz: You had like knowledge workers, product managers, and then you had like the (02:51):
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Ejaaz: wizards at the top that could like create software with their fingers. (02:55):
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Ejaaz: And then you had AI come along and be like, well, actually, we might be able (02:58):
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Ejaaz: to replace you in about six months. (03:01):
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Ejaaz: So all of these companies' valuations skyrocketed, Winsurf being one of them, right? (03:03):
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Ejaaz: Cursor was another popular one. And there was this massive frenzy for all the (03:07):
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Ejaaz: model creator companies like OpenAI, Claude, Meta, to try and acquire one of (03:11):
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Ejaaz: these companies so that they can have that feature set within their own product suite. (03:17):
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Ejaaz: And OpenAI kind of came in guns ablaze and said, Winsurf, we have tried to buy Cursor. (03:21):
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Ejaaz: It's not working. We need you. And we are willing to pay big bucks. (03:28):
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Ejaaz: So they offered basically $3 billion and it's written here in this Reuters article, (03:32):
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Ejaaz: but that's basically the headline takeaway that they offered $3 billion to buy these guys out. (03:37):
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Ejaaz: And that was a huge price tag at the time, but it was what a lot of individuals (03:42):
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Ejaaz: thought, a lot of people thought that Winsurf and AI vibe coding companies was worth at the time. (03:47):
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Ejaaz: And the reason why it was worth this much was because it was like this magical (03:52):
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Ejaaz: tool where you could type words and turn words into fully fledged apps, (03:55):
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Ejaaz: games, tools, services, (04:01):
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Ejaaz: Therapy apps, gym logs, whatever you might, whatever your mind could potentially think of. (04:03):
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Ejaaz: It's like turning chat gbt into like this like app (04:08):
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Ejaaz: maker and that as you can imagine is a billion dollar multi-billion dollar industry (04:11):
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Ejaaz: and you can kind of like see on my screen here like there's this like demo on (04:16):
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Ejaaz: this website where you can effectively just type words in and say like hey i (04:19):
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Ejaaz: want you to create like a folder or a website that like kind of displays my (04:24):
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Ejaaz: profile picture and all these kinds of things and it just (04:28):
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Ejaaz: You can see it coding in real time on the left here, Josh. (04:30):
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Josh: Yeah, and the interface is the thing that's different, right? (04:33):
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Josh: Because when you're using ChatGPT, it can code very well, but you only have (04:36):
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Josh: a text box and it kind of spits out code, but then you have to put it into your (04:39):
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Josh: compiler and it creates this like very messy workflow. (04:42):
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Josh: What Windsurf did is they kind of took that whole workflow and compressed it (04:45):
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Josh: down into one really powerful tool. (04:48):
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Josh: And that's what we're seeing here, right? It's like, this is the developers (04:50):
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Josh: come all in one, build your code, generate your code, debug your code all under one roof. Right. (04:52):
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Ejaaz: So you can imagine that if you are a software engineer that learns how to use (04:59):
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Ejaaz: this tool or gets access to a tool like this, you can suddenly work at 10x your (05:04):
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Ejaaz: speed and output, right? (05:09):
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Ejaaz: So there's this term that's often used in tech, which is called like 100x engineer, (05:10):
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Ejaaz: and they're usually super rare. (05:14):
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Ejaaz: This tool turns everyone into 100x engineer. (05:16):
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Ejaaz: And that means that you could hire probably fewer engineers to get your thing (05:20):
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Ejaaz: done, or you could scale your company 100x from where it is right now, (05:24):
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Ejaaz: just using existing employees and access to this tool, which is insane, right? (05:28):
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Ejaaz: So you can imagine something like this is worth a ton of money. (05:31):
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Ejaaz: But if you remember on a previous episode, Josh, we actually mentioned that (05:34):
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Ejaaz: OpenAI wasn't just, didn't just get to where they were on their own, right? (05:39):
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Ejaaz: They had some pretty impressive backers behind them. And one of their backers (05:44):
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Ejaaz: was this little known company called Microsoft. (05:48):
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Josh: I remember that. (05:51):
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Ejaaz: You remember Microsoft? You know, they've been around a while, (05:52):
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Ejaaz: right and some of the terms that microsoft struck with open air when they invested (05:55):
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Ejaaz: i think something to the tune of 16 billion dollars josh or is it like 24 i (06:00):
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Ejaaz: feel like i'm off by like 10 billion which is just like tens of billions tens (06:05):
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Ejaaz: of billions okay let's just go with casual tens of billions (06:09):
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Ejaaz: Part of the terms that they struck with OpenAI was that they get full access (06:12):
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Ejaaz: and IP control over OpenAI's models up until the year 2030. (06:16):
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Ejaaz: And also they get a significant chunk of revenue that OpenAI generates. (06:20):
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Ejaaz: And the final point, which is what is about to cause the rift that I'm about (06:25):
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Ejaaz: to describe, was access to any and all IP that they may acquire as well, Josh. (06:30):
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Ejaaz: So as you can imagine, OpenAI is buying this massively valuable company, (06:37):
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Ejaaz: Windsurf, for $3 billion. (06:41):
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Ejaaz: And their plan presumably is to build an amazing product suite and earn tons of money from it. (06:43):
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Ejaaz: But Microsoft would be eligible to owning the IP of Windsurf. (06:48):
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Ejaaz: And Sam Altman, OpenAI didn't like this. (06:52):
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Ejaaz: So the rumor behind the scene was that Sam Altman was negotiating with Microsoft, (06:54):
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Ejaaz: basically trying to get them off the cap table with that respect and not give (07:00):
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Ejaaz: them access to Windsurf. (07:03):
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Ejaaz: There was a lot of back and forth, a lot of insider knowledge, (07:05):
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Ejaaz: basically saying that Satya wasn't happy and that they couldn't come to an agreement. (07:07):
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Ejaaz: So the rumor was Satya walked away from the negotiating table. (07:11):
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Ejaaz: Now, typically, when an offer is made as big as this, $3 billion, (07:16):
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Ejaaz: It comes with some terms and conditions. (07:20):
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Ejaaz: And usually it comes with an expiry date. (07:22):
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Ejaaz: So if, God forbid, anything goes wrong, the deal suddenly becomes off the table. (07:24):
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Ejaaz: So, you know, typically anyone has kind of like an out. (07:29):
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Ejaaz: And what happened after Microsoft walked away from the negotiating table was (07:32):
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Ejaaz: that this $3 billion dollar offer josh expired on july 11th so literally a few (07:36):
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Ejaaz: days ago and that's when all the drama started (07:42):
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Josh: Unwinding expiration that is like a tremendous amount of money just to let, (07:45):
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Josh: expire right i feel like if i was i mean put yourself (07:51):
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Josh: in the the shoes of a windsurf employee where you own (07:54):
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Josh: equity you are worth on paper now a tremendous amount (07:58):
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Josh: of money and you're sitting there every day waking up looking at (08:00):
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Josh: like the news like am i going to get this money or is this (08:04):
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Josh: going to respond and then it expires it's like an option if you have a call (08:06):
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Josh: option it just expired worthless you you're left with nothing so now the windsurf (08:09):
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Josh: employee i guess i'll play that role because i'm pretty clueless in this whole (08:14):
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Josh: thing i'm pretty sad but i know my company's still worth a lot so like what (08:16):
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Josh: happens next to me as the windsurf employee after okay a ideal falls through i. (08:21):
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Ejaaz: Want you to to envision this josh okay so you're a windsurf employee and you've (08:26):
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Ejaaz: kind of been told that OpenAI is going to buy you for $3 billion. (08:32):
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Ejaaz: You go to bed one day, you wake up the next, and you realize that the deal has expired, right? (08:35):
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Ejaaz: And then a couple of hours, yeah, it's expired, it's done. (08:40):
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Ejaaz: And then a couple of hours later, you open up your laptop and you see this tweet. (08:43):
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Ejaaz: Josh, tell me about your reaction. (08:50):
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Josh: Big welcome to Mohan Solo and others from the Windsurf team joining DeepMind. (08:52):
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Josh: Now, if I remember correctly, the name of my CEO is the same handle that that was tagged in this post. (08:56):
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Ejaaz: Exactly. (09:03):
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Josh: Okay, you're good so far. I believe I've just learned that the CEO of my company, (09:03):
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Josh: as well as other, I guess, higher executives. (09:08):
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Ejaaz: You, the Windsurf team. (09:11):
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Josh: Me. I'm joining Google. I'm going to Google today. You're joining Google. (09:13):
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Ejaaz: You're joining Google, Josh. You're joining Google. Congrats. (09:16):
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Ejaaz: Are they paying me $3 billion? (09:20):
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Ejaaz: Exactly. And now your question is, are you paying $3 billion? (09:22):
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Ejaaz: Well, what if I told you this, Josh? They're not paying you $3 billion. (09:25):
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Ejaaz: They're paying you a little less. They're paying you $2.4 billion. (09:30):
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Ejaaz: Okay. How does that sound? So far, so good? Yeah. (09:35):
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Josh: I mean, at least better than nothing. (09:38):
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Ejaaz: You'll take that. You'll take it, right? (09:39):
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Josh: That'll make me multimillionaire for sure. That seems pretty chill. (09:41):
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Ejaaz: Sounds good. Except that there's one clause, which is that $2.4 billion is actually (09:45):
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Ejaaz: being used to buy your CEO that was just named in that tweet, (09:51):
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Ejaaz: one of his other co-founders and about four researchers on the entire company team. (09:55):
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Ejaaz: So this $2.4 (10:03):
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Josh: Billion is really just an acqui-hire for the talent. (10:04):
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Josh: A hundred percent. And they're still not buying my company. (10:10):
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Ejaaz: Yeah. So the long story short of this is Google announced that they struck a (10:14):
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Ejaaz: deal with Winsurf, particularly the CEO, and agreed to pay $2.4 billion, (10:20):
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Ejaaz: but primarily to hire Winsurf CEO and one other co-founder and a group of key researchers, (10:26):
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Ejaaz: along with the non-exclusive rights, non-exclusive licensing rights to some (10:32):
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Ejaaz: of Winsurf's technology. (10:39):
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Ejaaz: So this is, as you said, yeah, you just got zapped. They just paid a couple (10:41):
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Josh: Hundred million dollars, took the talent out of my company, and now I'm just (10:44):
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Josh: left with the shell, which is devastating, right? (10:47):
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Josh: I work so hard on building this. I am the reason this value exists because I (10:50):
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Josh: have been working hardcore engineering on this for years, And that seems really upsetting. (10:54):
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Ejaaz: Think about it. You are a founding engineer of this company. (10:59):
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Ejaaz: You're a founding employee of this company. (11:02):
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Ejaaz: Typically, you'd expect when you go from zero to $3 billion, (11:04):
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Ejaaz: you're going to see at least some of that. (11:08):
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Ejaaz: Surely, they're not going to concentrate over $1.25 billion for a single person. (11:11):
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Ejaaz: Surely, that's ludicrous, right? But that's unfortunately exactly what happened. (11:17):
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Ejaaz: So $2.4 billion for like five people and non-exclusive licensing rights for (11:21):
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Ejaaz: like some of Windsurf's tech. (11:27):
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Ejaaz: But the majority of the 250 people, its core business, the IP, (11:28):
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Ejaaz: the product, the brand, and the remaining team just kind of got left to the wayside. (11:33):
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Ejaaz: This was a pure play acquire. (11:38):
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Josh: Yikes. And I guess we could kind of speculate on what led to this. (11:41):
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Josh: Like if you remember, we actually spoke about this briefly on the show when (11:45):
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Josh: OpenAI made the offer to acquire Windsurf, immediately Anthropic and a few others (11:49):
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Josh: started pulling out their contracts with Windsurf. (11:53):
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Josh: So they were making the product less valuable because they didn't want to give (11:56):
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Josh: their data over to OpenAI. (12:00):
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Josh: As a result, it lowered the valuation of the company. (12:02):
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Josh: So when OpenAI then steps away and Winsurf still has to deal with the lost customers (12:05):
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Josh: of Anthropic and whoever else stepped away, well, suddenly the company is worth a little bit less. (12:12):
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Josh: And now Google steps in, they're like, okay, well, maybe we get a discount because (12:16):
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Josh: now your average revenue or your recurring revenue is way lower than it was (12:19):
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Josh: just a few months ago. So there's your 25% haircut. (12:24):
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Josh: And then they're like, well, we don't actually want the business because the (12:27):
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Josh: business is kind of failing. There's a lot of drama. (12:31):
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Josh: There's a lot of, a lot of your larger clients aren't interested because they're direct competitors. (12:33):
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Josh: So let's just take the talent. And that is such a sad thing to watch your baby (12:37):
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Josh: just get pummeled over and over again by these high executives. (12:42):
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Josh: But it's on, it's on brand, right? Like we've seen this happen before. (12:47):
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Josh: Zuck is offering hundreds of millions to billions for employees. (12:50):
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Josh: And now Google is doing the same exact thing. (12:54):
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Ejaaz: I think you just highlighted a really important trend, which has just been confirmed. (12:57):
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Ejaaz: By these events, Josh, which is the stars of the show for any AI company are (13:01):
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Ejaaz: its researchers, are its model creators. (13:07):
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Ejaaz: They're the ones that are selling for like multiples of a top NBA super sports star, right? (13:10):
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Ejaaz: Hundreds and hundreds of millions, potentially billions for a single person. (13:18):
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Ejaaz: That is just an absurd amount of money and has probably never been seen the (13:23):
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Ejaaz: like from any kind of industry before, right? (13:27):
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Josh: They're like professional sports athletes. (13:29):
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Ejaaz: Yeah. Yeah, they're not worth their weight in gold. They're worth a hundred (13:31):
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Ejaaz: times their weight in gold, apparently, right? (13:35):
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Ejaaz: And then the second thing I think that's happening here, Josh, (13:37):
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Ejaaz: is Google got a bit antsy when they saw that Zuck aggressively poached OpenAI's staff. (13:40):
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Ejaaz: I think they hired like, what, 10 people? So that's probably somewhere around (13:48):
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Ejaaz: $2.5 billion spent, if we want to believe the rumors of like hundreds of millions (13:53):
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Ejaaz: being spent for certain researchers. (13:58):
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Ejaaz: So Google's probably watched this happen over the last two weeks, (14:00):
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Ejaaz: which is an insane thing to say, by the way. (14:03):
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Ejaaz: This has happened over the last two weeks and thought, oh shit, we're next in line. (14:05):
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Ejaaz: We're the next best model provider for many a reason. (14:10):
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Ejaaz: They have access to all our AI papers so they can see who the best researchers that we have are. (14:13):
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Ejaaz: And Zuck's probably reaching out to all of these. So they saw this opportunity (14:18):
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Ejaaz: and jumped on it and decided to do the opposite and say, well, screw you, Zuck. (14:22):
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Ejaaz: I know what you're coming for, but I'm going to jump ahead of the curve and (14:27):
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Ejaaz: actually poach these guys before you do so that we keep bolstering confidence (14:30):
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Ejaaz: in our team and our ability to build up the team? What do you think of that? Is that fair? (14:34):
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Josh: Yeah, well, one of the biggest things I've been wondering is like, (14:39):
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Josh: how are they actually worth $100 million? How are they worth a billion dollars for a single person? (14:42):
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Josh: And I posted this publicly and I like did some digging and the answer is really, (14:47):
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Josh: it's still a fuzzy answer, but basically they're a series of difficult problems, (14:52):
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Josh: most of which are unknown that are required to be solved in order to reach this goal. (14:56):
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Josh: So in the case of training improvements, I mean, we spoke about Kimi K2 yesterday. (15:01):
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Josh: The reason that model performed so well is was because a novel breakthrough (15:06):
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Josh: that a researcher discovered and then deployed into the code base. (15:09):
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Josh: And now they have a model that competes with Claude, but it's open source and free to use. (15:12):
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Josh: So that's a huge advantage. And that is a multi-billion dollar advantage at scale. (15:16):
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Josh: So if you can pay one researcher to come up with a novel breakthrough like this (15:20):
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Josh: and then deploy it to your code base, then suddenly you have gained billions (15:24):
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Josh: of dollars of market cap. and it compounds because the scale is so large. (15:28):
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Josh: And this exists all the way down the stack because when you're doing a training (15:32):
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Josh: run, I mean, a lot of these companies have 100,000, 200,000 GPUs that are all (15:34):
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Josh: focused on one single training run. (15:38):
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Josh: And that means they can't be serving customers. They can't be serving queries (15:41):
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Josh: to make the company money. (15:44):
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Josh: It is a net spend that they're incurring to train this model. (15:45):
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Josh: And in the case that an engineer didn't make the right decision or went down (15:49):
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Josh: the wrong decision tree, that could cost them many, many billions of dollars, (15:54):
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Josh: days, weeks of time. and in this world, those weeks cost a lot of money. (15:59):
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Josh: So basically what I realized, what I came to consensus on is they're just giving (16:03):
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Josh: themselves the best probability by having the most intelligent people on the (16:06):
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Josh: specific topic of making the correct decision trees required to get to where they want to go. (16:11):
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Josh: And that is why the stakes are so high. And that's why they're being paid billions (16:15):
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Josh: of dollars because someone like Ilya, who has been around for a decade plus, (16:19):
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Josh: is probably most likely to make the right decisions, even though it's no guarantee. (16:23):
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Ejaaz: What you've just described is the wild west and (16:28):
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Ejaaz: i love how you described it as kind of like an ai model (16:31):
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Ejaaz: josh you were like it's probabilistic we don't (16:34):
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Ejaaz: really know which path it's going to take but they're running it through this (16:37):
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Ejaaz: model and they're estimating that the output would be like this so they're spending (16:39):
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Ejaaz: hundreds of millions of dollars i thought it was beautifully done but josh if (16:43):
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Ejaaz: you remember at the start of this episode i said that it ended like a fairy (16:47):
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Ejaaz: tale So right now, we're at devastation point, right? (16:52):
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Josh: I'm deep in my nightmare right now. I'm living it. I've just seen my entire (16:56):
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Josh: C-suite get poached for two and a half billion dollars. I got nothing. (16:59):
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Ejaaz: You just hustled for five to 10 years and you have nothing to show for it. (17:02):
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Ejaaz: You have a family of kids to feed and you promised them you're going to get (17:07):
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Ejaaz: them millions and nothing's happened, right? (17:11):
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Ejaaz: So here's what happens next. Do you remember way back when, and I think this (17:14):
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Ejaaz: is like a year ago, when the first AI engineer agent was released. (17:19):
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Ejaaz: It was this thing called Devin, D-E-V-I-N. Do you remember that? (17:25):
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Josh: I do, yeah. Yeah. (17:28):
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Ejaaz: Yeah. Do you remember the hype that was caused because of it? (17:30):
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Ejaaz: I think they released like this 30 second demo of this really slick AI agent. (17:34):
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Ejaaz: It's kind of like ChatGPT, but it was just doing all the coding and engineers (17:39):
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Ejaaz: lost their mind. They were like, oh my God, I would. There were two camps. (17:43):
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Ejaaz: One, I would love using a tool like this and it'll enhance me 10x or whatever. (17:46):
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Ejaaz: And then a vast swathe of people online that hated it and said, (17:51):
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Ejaaz: there's no way it's as good as it is. and then, you know, A16Z jumped in. (17:56):
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Ejaaz: I think they threw them like a $200 million check, classic A16Z. (18:00):
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Ejaaz: And there was a lot of hype around this. That was like one of the clearest signals (18:03):
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Ejaaz: early on that Vibe coding was going to become a thing. Do you remember that? (18:07):
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Ejaaz: I do. So this company that created Devin is called Cognition. (18:10):
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Ejaaz: And we saw this post come up literally the day after Google's acquisition. (18:16):
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Ejaaz: So imagine you wake up one day, you realize you've lost the OpenAI deal. You're like, damn. (18:21):
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Ejaaz: And then a few hours later, So you see the tweet from Logan Kilpatrick from (18:26):
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Ejaaz: Google saying, hey, we bought you for $2.4 billion. (18:30):
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Ejaaz: You're elated until you realize that you're not getting paid any of that stuff. (18:33):
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Ejaaz: So you go into like peak depression. (18:37):
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Ejaaz: And then the next day, you see an announcement from Cognition. (18:39):
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Ejaaz: And this is the official announcement on Cognition's website. (18:43):
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Ejaaz: Cognition acquires Winsurf. (18:45):
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Ejaaz: And it's this joint announcement from the CEO of Cognition, which is Scott Wu. (18:48):
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Ejaaz: And one of the co-founders and by the way this is the co-founder that didn't (18:55):
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Ejaaz: get included in the $2.4 billion win self deal Man, that's got to sting Yeah, (18:59):
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Ejaaz: yeah, yeah Well, calling him a co-founder is kind of like a bit of a (19:04):
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Ejaaz: kind of like graceful title to give him. But his name is Jeff Wang. (19:08):
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Ejaaz: And he was the recently appointed CEO after the two co-founders just ditched him, basically. (19:12):
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Ejaaz: And they were like, okay, Jeff, you're head of BD, but we need you to step up (19:18):
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Ejaaz: as CEO because we're going to bounce and take this billion dollar check. (19:22):
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Ejaaz: But you're the new CEO. So this guy, Jeff Wang, and this CEO, Scott Wu of Cognition, (19:25):
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Ejaaz: struck a deal to basically take over the remaining IP, product, (19:33):
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Ejaaz: brand, And remaining team, most importantly, 250 individuals all have families, (19:38):
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Ejaaz: mouths to feed, whatever lives to live and include them in this package deal. (19:43):
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Ejaaz: So this was the major announcement that like kind of like swept the social media (19:48):
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Ejaaz: realms and made everyone super happy and elated by this and, (19:52):
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Ejaaz: you know, gave them their happy ending. (19:56):
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Josh: What was the total cost that they paid? Did they announce that? (19:58):
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Ejaaz: That's a great question. Let me pull up this tweet of this guy called Harry. (20:01):
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Ejaaz: Oh, here we are. His title is Harry Digresses. (20:06):
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Ejaaz: It wasn't official how much they got paid for, but there were some really amazing (20:09):
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Ejaaz: deal terms in this, Josh. (20:13):
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Ejaaz: So I'll highlight a few things here. The first one is this. (20:14):
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Ejaaz: So not only were all 250 employees that were left behind going to get paid, (20:18):
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Ejaaz: but they were going to have all their cliffs removed and have accelerated vesting on all their equity. (20:24):
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Josh: Amazing. Okay. So they're making things right, or at least as best they can. (20:30):
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Josh: It's not the $3 billion dollar offer initially but like they're doing the best (20:33):
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Josh: they can and i mean as an employee of windsurf that feels really good feels. (20:36):
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Ejaaz: Really good but then you're you're wondering you're wondering well how much (20:41):
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Ejaaz: am i am i getting paid like like how much are we getting acquired (20:44):
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Josh: For yeah let's say i had one percent i mean that's 30 million dollars i was (20:47):
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Josh: about to bag and now so where are we at now it. (20:51):
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Ejaaz: Might be it might be a little less but he basically does this (20:55):
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Ejaaz: rundown and estimates it to be around 300 to 400 million dollars which is a (20:57):
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Ejaaz: significant drop from what you are going to get paid but it's also not nothing (21:04):
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Ejaaz: the other way i was thinking about it is it's probably all in cognition stock (21:09):
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Ejaaz: josh there's no way they had that much (21:13):
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Josh: Cash yeah just cash sitting on hand okay so my my 30 million dollars is now (21:15):
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Josh: three million dollars in stock for cognition which is a private company not (21:20):
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Josh: even liquid oh yeah lots of tax implications, (21:27):
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Josh: okay so i mean at least i have a job i guess is where i'll end up on this is like cool. (21:31):
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Ejaaz: I mean, now that I recounted to you, Josh, you're still screwed. (21:38):
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Josh: You're still screwed, dude. At this point, I'm just happy to be employed. (21:43):
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Josh: I'm just glad that I still have some sort of a job. I'm hopefully collecting some sort of paycheck. (21:45):
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Josh: One day, it is hopeful that the stock will be worth money, and then I'll be (21:50):
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Josh: able to sell it and cash out. But man, yeah, what a roller coaster. (21:54):
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Josh: And it kind of sets this new paradigm, right? Where you can cut, (21:57):
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Josh: you could kind of rip the value out of a company and then just kind of throw the rest to the side. (22:00):
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Josh: But it's this really interesting ideological debate you could have as a founder (22:05):
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Josh: of a company whose fiduciary duty is to serve right by the shareholders. (22:10):
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Josh: And in this case, your shareholders are the employees that you've given stock options to. (22:14):
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Josh: And in the case that they're just going away and they've destroyed the value (22:19):
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Josh: of the company, they've extracted the value of the acquisition. (22:24):
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Josh: They have kind of just left the shell of a company and left the people who are (22:28):
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Josh: responsible for putting them in that place on the side of the road and like (22:32):
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Josh: that doesn't feel very good but there's really nothing legally preventing them (22:36):
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Josh: from stopping that it's really just an ideological, (22:40):
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Josh: debate in this case it doesn't i mean i'd be pretty i'd be pretty upset sure (22:44):
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Josh: if i'm one of the founders i just made a billion i'm now a billionaire like (22:48):
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Josh: that's cool but for everyone else. It kind of leaves a bed for the. (22:51):
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Ejaaz: Majority of people. Yeah, you're screwed. I don't know whether it's because (22:55):
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Ejaaz: of all the time I've spent in web three, Josh, but I've kind of grown numb to (23:00):
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Ejaaz: all this like terrible, appalling behavior, unequitable behavior. (23:05):
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Ejaaz: And so I kind of look at a story like this and I'm like, oh yeah, (23:09):
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Ejaaz: he got paid billions and left the entire company and team to dry. (23:12):
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Ejaaz: Yeah. Happens all the time, I guess. But like, I'm just, I'm noticing this trend, (23:18):
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Ejaaz: particularly within AI that there's this more wild (23:22):
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Ejaaz: west kind of degenerate behavior when it comes to acquisitions like people are (23:25):
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Ejaaz: ruthless and i don't know whether this is maybe it's my naivety when it comes (23:30):
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Ejaaz: to like vc deals and acquisitions and mergers maybe i just i just don't know (23:33):
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Ejaaz: maybe this happens all the time but this seems like the most extremely skewed version of this and (23:37):
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Josh: We often refer to it on the show as like the game of thrones and (23:44):
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Josh: i don't think there's a much better description than that where it really is (23:47):
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Josh: cutthroat and this happens a lot in traditional venture and acquisitions but (23:50):
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Josh: this scale i think has never been greater and that's probably what stands out (23:53):
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Josh: among all of these headlines is just how much money is being made lost and thrown (23:58):
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Josh: around to position yourself better to get to this point of agi but you have (24:02):
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Josh: a tweet you had a post here it looks. (24:07):
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Ejaaz: Funny just to round us out josh just to like put a bit of cherry on this cake (24:09):
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Ejaaz: well the tldr is like everyone hates varoon mohan the former ceo who took the (24:15):
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Ejaaz: 1.5 billion dollar check or however much it was. (24:22):
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Ejaaz: And everyone loves Scott Wu, the CEO of Cognition Lambs, who stepped up, (24:25):
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Ejaaz: gave the 250 employees a salary and a lifeline and accelerated vesting. (24:29):
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Ejaaz: So no matter the size of the money, shout out to Scott Wu. He didn't need to do that. (24:35):
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Ejaaz: And then, you know, Varun, I wonder, you know, whether his reputation survives this. (24:39):
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Ejaaz: I can see the reasoning why you would take the big check, but also like leaving (24:44):
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Ejaaz: all your employees out like that to drive without even giving them, (24:49):
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Ejaaz: I don't know, a couple mil is kind of insane. But here we are. (24:51):
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Ejaaz: So what's the price on your reputation? (24:56):
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Josh: Like, would you take a couple billion dollars to just go work on AGI and let the. (24:58):
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Ejaaz: Media do a thing for a couple of weeks? I know a lot of people that would do (25:02):
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Ejaaz: it. I know a lot of people. I mean, I'm one of them. (25:04):
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Josh: I'd probably do that, right? Like, a couple billion dollars? I don't know. (25:07):
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Josh: But also, yeah, it's tough. Well, it's funny because at this graphic, (25:11):
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Josh: it's a win-win for both of them. (25:14):
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Josh: Like, Varun is, or I'm not sure how you pronounce his name, but he's hated. (25:15):
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Josh: The CEO of Winsurf is not liked, but he's rich. and Scott Wu is loved. (25:20):
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Josh: And now he has a bunch of employees that really want to work hard to make this (25:25):
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Josh: work for him and really want to add value to his company and can go to sleep (25:29):
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Josh: with a good conscience knowing he's done well and he's done right by these people. (25:33):
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Josh: Whereas our windsurf buddy cannot do that. So maybe he will just be, (25:37):
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Josh: one of them will be crying in their $100 million mansion while the other will (25:41):
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Josh: be surrounded by people who love him dearly. (25:45):
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Ejaaz: Yeah, I think that's pretty much it. An absolutely outrageous, (25:48):
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Ejaaz: but weirdly normal day in the world of AI, Josh. (25:51):
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Ejaaz: We thank you guys for listening. We are trying out this new format. (25:56):
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Ejaaz: We've said this before, where we kind of talk about trending topics and be or (26:00):
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Ejaaz: try and be the first guys to talk about it and put it in front of your feeds. (26:05):
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Ejaaz: We are welcoming any and all feedback. So, you know, any kind of comments or (26:09):
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Ejaaz: DMs, it's all open, go for it. (26:13):
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Ejaaz: And if you could like, subscribe and share it with all your friends or anyone (26:16):
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Ejaaz: who you think would be interested in this kind of thing, we would be eternally (26:18):
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Ejaaz: grateful and we'll see you on the next episode see you (26:22):
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Josh: On the next one peace guys. (26:25):
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Music: Music (26:27):
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Ejaaz: the last 24 hours got stolen from open ai (00:05):
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Ejaaz: and sold not once but twice for (00:08):
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Ejaaz: over 3 billion dollars and then (00:12):
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Ejaaz: everyone lost their minds completely when they realized that (00:15):
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Ejaaz: two of the co-founders were taking almost all of that money (00:18):
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Ejaaz: for themselves and leaving the rest of the (00:21):
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Ejaaz: company 250 employees in the (00:23):
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Ejaaz: dust and as you can imagine josh this sparked a lot of outrage online but it (00:26):
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Ejaaz: did end up having a fairy tale ending when another company swooped in and bought (00:32):
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Ejaaz: the rest of the company and the 250 employees got paid josh i'm exhausted can (00:37):
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Ejaaz: you tell me what's happening well (00:42):
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Josh: I'm actually not sure myself this feels like an episode out of like a sitcom (00:44):
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Josh: or a silicon valley episode where there's so much drama so many twists and turns (00:47):
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Josh: that seemingly don't make any sense i mean it was. (00:52):
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Ejaaz: Acquired i have a fun anecdote for you josh actually the office that the windsurf (00:54):
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Ejaaz: company was set up in guess no (00:58):
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Josh: Not silicon valley, (01:02):
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Josh: oh man it's so real silicon valley was such a testament at the. (01:06):
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Ejaaz: Time so i swear they (01:09):
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Josh: Were they were ahead of the curve but yeah i i'm actually i'm excited to record (01:10):
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Josh: this episode because i need you to explain to me a lot of what's happening i (01:14):
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Josh: don't know too much about the recent news i've been very much in in the grok (01:17):
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Josh: rabbit hole i know a lot of the earlier topics maybe i could help set the stage before we get into it. (01:21):
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Josh: So for people who aren't familiar, Windsurf was not always Windsurf. (01:26):
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Josh: It was a company that was founded in 2021 called Exifunction. (01:29):
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Josh: And it was founded by two MIT graduates initially focused on GPU optimization. (01:33):
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Josh: So they were a GPU optimizer company. (01:37):
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Josh: They were doing absolutely nothing relative to what they're doing today. (01:39):
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Josh: Three years later, they raised a series C round at $150 million, (01:43):
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Josh: which valued them unicorn status, one and a quarter billion dollars. (01:46):
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Josh: And that was when they rebranded to Windsurf. And Windsurf was not a GPU optimization (01:50):
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Josh: company. It was instead the company that we all know today, which is the AI (01:55):
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Josh: coding companion, cursor competitor, vibe coding extraordinaire. (01:59):
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Josh: Exactly. Yeah. So that's when they kind of came into their final form, (02:04):
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Josh: which was only last year. (02:07):
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Josh: So the first three years of operation, this like strange company trying to figure (02:09):
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Josh: it out last year, it was huge. (02:14):
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Josh: And then we get into 2025 where their annual revenue went from not a lot to (02:15):
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Josh: a hundred million plus. And I think this is where I'm going to hand it off to (02:19):
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Josh: you because things got crazy. (02:22):
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Josh: They turned into a really big company. They started collecting valuable data. (02:23):
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Josh: Their revenue went through the roof into the nine figures. (02:26):
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Josh: And that's where this drama begins. (02:29):
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Ejaaz: So Josh, do you remember around that time, it became a kind of trending narrative that AI... (02:32):
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Ejaaz: Coding or coders was going to replace software engineers. So companies were (02:39):
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Ejaaz: getting really nervous and software engineers were getting really nervous because (02:43):
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Ejaaz: they were kind of like consistently held in as like the highest regard of employee, right? (02:46):
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Ejaaz: You had like knowledge workers, product managers, and then you had like the (02:51):
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Ejaaz: wizards at the top that could like create software with their fingers. (02:55):
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Ejaaz: And then you had AI come along and be like, well, actually, we might be able (02:58):
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Ejaaz: to replace you in about six months. (03:01):
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Ejaaz: So all of these companies' valuations skyrocketed, Winsurf being one of them, right? (03:03):
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Ejaaz: Cursor was another popular one. And there was this massive frenzy for all the (03:07):
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Ejaaz: model creator companies like OpenAI, Claude, Meta, to try and acquire one of (03:11):
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Ejaaz: these companies so that they can have that feature set within their own product suite. (03:17):
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Ejaaz: And OpenAI kind of came in guns ablaze and said, Winsurf, we have tried to buy Cursor. (03:21):
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Ejaaz: It's not working. We need you. And we are willing to pay big bucks. (03:28):
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Ejaaz: So they offered basically $3 billion and it's written here in this Reuters article, (03:32):
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Ejaaz: but that's basically the headline takeaway that they offered $3 billion to buy these guys out. (03:37):
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Ejaaz: And that was a huge price tag at the time, but it was what a lot of individuals (03:42):
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Ejaaz: thought, a lot of people thought that Winsurf and AI vibe coding companies was worth at the time. (03:47):
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Ejaaz: And the reason why it was worth this much was because it was like this magical (03:52):
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Ejaaz: tool where you could type words and turn words into fully fledged apps, (03:55):
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Ejaaz: games, tools, services, (04:01):
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Ejaaz: Therapy apps, gym logs, whatever you might, whatever your mind could potentially think of. (04:03):
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Ejaaz: It's like turning chat gbt into like this like app (04:08):
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Ejaaz: maker and that as you can imagine is a billion dollar multi-billion dollar industry (04:11):
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Ejaaz: and you can kind of like see on my screen here like there's this like demo on (04:16):
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Ejaaz: this website where you can effectively just type words in and say like hey i (04:19):
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Ejaaz: want you to create like a folder or a website that like kind of displays my (04:24):
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Ejaaz: profile picture and all these kinds of things and it just (04:28):
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Ejaaz: You can see it coding in real time on the left here, Josh. (04:30):
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Josh: Yeah, and the interface is the thing that's different, right? (04:33):
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Josh: Because when you're using ChatGPT, it can code very well, but you only have (04:36):
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Josh: a text box and it kind of spits out code, but then you have to put it into your (04:39):
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Josh: compiler and it creates this like very messy workflow. (04:42):
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Josh: What Windsurf did is they kind of took that whole workflow and compressed it (04:45):
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Josh: down into one really powerful tool. (04:48):
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Josh: And that's what we're seeing here, right? It's like, this is the developers (04:50):
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Josh: come all in one, build your code, generate your code, debug your code all under one roof. Right. (04:52):
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Ejaaz: So you can imagine that if you are a software engineer that learns how to use (04:59):
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Ejaaz: this tool or gets access to a tool like this, you can suddenly work at 10x your (05:04):
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Ejaaz: speed and output, right? (05:09):
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Ejaaz: So there's this term that's often used in tech, which is called like 100x engineer, (05:10):
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Ejaaz: and they're usually super rare. (05:14):
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Ejaaz: This tool turns everyone into 100x engineer. (05:16):
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Ejaaz: And that means that you could hire probably fewer engineers to get your thing (05:20):
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Ejaaz: done, or you could scale your company 100x from where it is right now, (05:24):
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Ejaaz: just using existing employees and access to this tool, which is insane, right? (05:28):
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Ejaaz: So you can imagine something like this is worth a ton of money. (05:31):
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Ejaaz: But if you remember on a previous episode, Josh, we actually mentioned that (05:34):
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Ejaaz: OpenAI wasn't just, didn't just get to where they were on their own, right? (05:39):
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Ejaaz: They had some pretty impressive backers behind them. And one of their backers (05:44):
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Ejaaz: was this little known company called Microsoft. (05:48):
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Josh: I remember that. (05:51):
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Ejaaz: You remember Microsoft? You know, they've been around a while, (05:52):
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Ejaaz: right and some of the terms that microsoft struck with open air when they invested (05:55):
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Ejaaz: i think something to the tune of 16 billion dollars josh or is it like 24 i (06:00):
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Ejaaz: feel like i'm off by like 10 billion which is just like tens of billions tens (06:05):
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Ejaaz: of billions okay let's just go with casual tens of billions (06:09):
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Ejaaz: Part of the terms that they struck with OpenAI was that they get full access (06:12):
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Ejaaz: and IP control over OpenAI's models up until the year 2030. (06:16):
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Ejaaz: And also they get a significant chunk of revenue that OpenAI generates. (06:20):
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Ejaaz: And the final point, which is what is about to cause the rift that I'm about (06:25):
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Ejaaz: to describe, was access to any and all IP that they may acquire as well, Josh. (06:30):
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Ejaaz: So as you can imagine, OpenAI is buying this massively valuable company, (06:37):
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Ejaaz: Windsurf, for $3 billion. (06:41):
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Ejaaz: And their plan presumably is to build an amazing product suite and earn tons of money from it. (06:43):
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Ejaaz: But Microsoft would be eligible to owning the IP of Windsurf. (06:48):
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Ejaaz: And Sam Altman, OpenAI didn't like this. (06:52):
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Ejaaz: So the rumor behind the scene was that Sam Altman was negotiating with Microsoft, (06:54):
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Ejaaz: basically trying to get them off the cap table with that respect and not give (07:00):
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Ejaaz: them access to Windsurf. (07:03):
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Ejaaz: There was a lot of back and forth, a lot of insider knowledge, (07:05):
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Ejaaz: basically saying that Satya wasn't happy and that they couldn't come to an agreement. (07:07):
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Ejaaz: So the rumor was Satya walked away from the negotiating table. (07:11):
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Ejaaz: Now, typically, when an offer is made as big as this, $3 billion, (07:16):
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Ejaaz: It comes with some terms and conditions. (07:20):
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Ejaaz: And usually it comes with an expiry date. (07:22):
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Ejaaz: So if, God forbid, anything goes wrong, the deal suddenly becomes off the table. (07:24):
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Ejaaz: So, you know, typically anyone has kind of like an out. (07:29):
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Ejaaz: And what happened after Microsoft walked away from the negotiating table was (07:32):
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Ejaaz: that this $3 billion dollar offer josh expired on july 11th so literally a few (07:36):
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Ejaaz: days ago and that's when all the drama started (07:42):
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Josh: Unwinding expiration that is like a tremendous amount of money just to let, (07:45):
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Josh: expire right i feel like if i was i mean put yourself (07:51):
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Josh: in the the shoes of a windsurf employee where you own (07:54):
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Josh: equity you are worth on paper now a tremendous amount (07:58):
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Josh: of money and you're sitting there every day waking up looking at (08:00):
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Josh: like the news like am i going to get this money or is this (08:04):
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Josh: going to respond and then it expires it's like an option if you have a call (08:06):
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Josh: option it just expired worthless you you're left with nothing so now the windsurf (08:09):
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Josh: employee i guess i'll play that role because i'm pretty clueless in this whole (08:14):
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Josh: thing i'm pretty sad but i know my company's still worth a lot so like what (08:16):
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Josh: happens next to me as the windsurf employee after okay a ideal falls through i. (08:21):
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Ejaaz: Want you to to envision this josh okay so you're a windsurf employee and you've (08:26):
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Ejaaz: kind of been told that OpenAI is going to buy you for $3 billion. (08:32):
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Ejaaz: You go to bed one day, you wake up the next, and you realize that the deal has expired, right? (08:35):
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Ejaaz: And then a couple of hours, yeah, it's expired, it's done. (08:40):
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Ejaaz: And then a couple of hours later, you open up your laptop and you see this tweet. (08:43):
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Ejaaz: Josh, tell me about your reaction. (08:50):
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Josh: Big welcome to Mohan Solo and others from the Windsurf team joining DeepMind. (08:52):
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Josh: Now, if I remember correctly, the name of my CEO is the same handle that that was tagged in this post. (08:56):
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Ejaaz: Exactly. (09:03):
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Josh: Okay, you're good so far. I believe I've just learned that the CEO of my company, (09:03):
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Josh: as well as other, I guess, higher executives. (09:08):
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Ejaaz: You, the Windsurf team. (09:11):
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Josh: Me. I'm joining Google. I'm going to Google today. You're joining Google. (09:13):
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Ejaaz: You're joining Google, Josh. You're joining Google. Congrats. (09:16):
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Ejaaz: Are they paying me $3 billion? (09:20):
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Ejaaz: Exactly. And now your question is, are you paying $3 billion? (09:22):
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Ejaaz: Well, what if I told you this, Josh? They're not paying you $3 billion. (09:25):
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Ejaaz: They're paying you a little less. They're paying you $2.4 billion. (09:30):
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Ejaaz: Okay. How does that sound? So far, so good? Yeah. (09:35):
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Josh: I mean, at least better than nothing. (09:38):
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Ejaaz: You'll take that. You'll take it, right? (09:39):
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Josh: That'll make me multimillionaire for sure. That seems pretty chill. (09:41):
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Ejaaz: Sounds good. Except that there's one clause, which is that $2.4 billion is actually (09:45):
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Ejaaz: being used to buy your CEO that was just named in that tweet, (09:51):
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Ejaaz: one of his other co-founders and about four researchers on the entire company team. (09:55):
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Ejaaz: So this $2.4 (10:03):
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Josh: Billion is really just an acqui-hire for the talent. (10:04):
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Josh: A hundred percent. And they're still not buying my company. (10:10):
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Ejaaz: Yeah. So the long story short of this is Google announced that they struck a (10:14):
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Ejaaz: deal with Winsurf, particularly the CEO, and agreed to pay $2.4 billion, (10:20):
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Ejaaz: but primarily to hire Winsurf CEO and one other co-founder and a group of key researchers, (10:26):
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Ejaaz: along with the non-exclusive rights, non-exclusive licensing rights to some (10:32):
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Ejaaz: of Winsurf's technology. (10:39):
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Ejaaz: So this is, as you said, yeah, you just got zapped. They just paid a couple (10:41):
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Josh: Hundred million dollars, took the talent out of my company, and now I'm just (10:44):
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Josh: left with the shell, which is devastating, right? (10:47):
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Josh: I work so hard on building this. I am the reason this value exists because I (10:50):
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Josh: have been working hardcore engineering on this for years, And that seems really upsetting. (10:54):
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Ejaaz: Think about it. You are a founding engineer of this company. (10:59):
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Ejaaz: You're a founding employee of this company. (11:02):
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Ejaaz: Typically, you'd expect when you go from zero to $3 billion, (11:04):
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Ejaaz: you're going to see at least some of that. (11:08):
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Ejaaz: Surely, they're not going to concentrate over $1.25 billion for a single person. (11:11):
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Ejaaz: Surely, that's ludicrous, right? But that's unfortunately exactly what happened. (11:17):
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Ejaaz: So $2.4 billion for like five people and non-exclusive licensing rights for (11:21):
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Ejaaz: like some of Windsurf's tech. (11:27):
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Ejaaz: But the majority of the 250 people, its core business, the IP, (11:28):
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Ejaaz: the product, the brand, and the remaining team just kind of got left to the wayside. (11:33):
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Ejaaz: This was a pure play acquire. (11:38):
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Josh: Yikes. And I guess we could kind of speculate on what led to this. (11:41):
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Josh: Like if you remember, we actually spoke about this briefly on the show when (11:45):
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Josh: OpenAI made the offer to acquire Windsurf, immediately Anthropic and a few others (11:49):
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Josh: started pulling out their contracts with Windsurf. (11:53):
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Josh: So they were making the product less valuable because they didn't want to give (11:56):
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Josh: their data over to OpenAI. (12:00):
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Josh: As a result, it lowered the valuation of the company. (12:02):
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Josh: So when OpenAI then steps away and Winsurf still has to deal with the lost customers (12:05):
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Josh: of Anthropic and whoever else stepped away, well, suddenly the company is worth a little bit less. (12:12):
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Josh: And now Google steps in, they're like, okay, well, maybe we get a discount because (12:16):
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Josh: now your average revenue or your recurring revenue is way lower than it was (12:19):
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Josh: just a few months ago. So there's your 25% haircut. (12:24):
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Josh: And then they're like, well, we don't actually want the business because the (12:27):
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Josh: business is kind of failing. There's a lot of drama. (12:31):
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Josh: There's a lot of, a lot of your larger clients aren't interested because they're direct competitors. (12:33):
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Josh: So let's just take the talent. And that is such a sad thing to watch your baby (12:37):
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Josh: just get pummeled over and over again by these high executives. (12:42):
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Josh: But it's on, it's on brand, right? Like we've seen this happen before. (12:47):
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Josh: Zuck is offering hundreds of millions to billions for employees. (12:50):
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Josh: And now Google is doing the same exact thing. (12:54):
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Ejaaz: I think you just highlighted a really important trend, which has just been confirmed. (12:57):
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Ejaaz: By these events, Josh, which is the stars of the show for any AI company are (13:01):
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Ejaaz: its researchers, are its model creators. (13:07):
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Ejaaz: They're the ones that are selling for like multiples of a top NBA super sports star, right? (13:10):
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Ejaaz: Hundreds and hundreds of millions, potentially billions for a single person. (13:18):
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Ejaaz: That is just an absurd amount of money and has probably never been seen the (13:23):
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Ejaaz: like from any kind of industry before, right? (13:27):
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Josh: They're like professional sports athletes. (13:29):
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Ejaaz: Yeah. Yeah, they're not worth their weight in gold. They're worth a hundred (13:31):
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Ejaaz: times their weight in gold, apparently, right? (13:35):
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Ejaaz: And then the second thing I think that's happening here, Josh, (13:37):
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Ejaaz: is Google got a bit antsy when they saw that Zuck aggressively poached OpenAI's staff. (13:40):
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Ejaaz: I think they hired like, what, 10 people? So that's probably somewhere around (13:48):
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Ejaaz: $2.5 billion spent, if we want to believe the rumors of like hundreds of millions (13:53):
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Ejaaz: being spent for certain researchers. (13:58):
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Ejaaz: So Google's probably watched this happen over the last two weeks, (14:00):
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Ejaaz: which is an insane thing to say, by the way. (14:03):
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Ejaaz: This has happened over the last two weeks and thought, oh shit, we're next in line. (14:05):
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Ejaaz: We're the next best model provider for many a reason. (14:10):
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Ejaaz: They have access to all our AI papers so they can see who the best researchers that we have are. (14:13):
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Ejaaz: And Zuck's probably reaching out to all of these. So they saw this opportunity (14:18):
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Ejaaz: and jumped on it and decided to do the opposite and say, well, screw you, Zuck. (14:22):
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Ejaaz: I know what you're coming for, but I'm going to jump ahead of the curve and (14:27):
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Ejaaz: actually poach these guys before you do so that we keep bolstering confidence (14:30):
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Ejaaz: in our team and our ability to build up the team? What do you think of that? Is that fair? (14:34):
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Josh: Yeah, well, one of the biggest things I've been wondering is like, (14:39):
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Josh: how are they actually worth $100 million? How are they worth a billion dollars for a single person? (14:42):
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Josh: And I posted this publicly and I like did some digging and the answer is really, (14:47):
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Josh: it's still a fuzzy answer, but basically they're a series of difficult problems, (14:52):
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Josh: most of which are unknown that are required to be solved in order to reach this goal. (14:56):
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Josh: So in the case of training improvements, I mean, we spoke about Kimi K2 yesterday. (15:01):
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Josh: The reason that model performed so well is was because a novel breakthrough (15:06):
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Josh: that a researcher discovered and then deployed into the code base. (15:09):
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Josh: And now they have a model that competes with Claude, but it's open source and free to use. (15:12):
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Josh: So that's a huge advantage. And that is a multi-billion dollar advantage at scale. (15:16):
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Josh: So if you can pay one researcher to come up with a novel breakthrough like this (15:20):
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Josh: and then deploy it to your code base, then suddenly you have gained billions (15:24):
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Josh: of dollars of market cap. and it compounds because the scale is so large. (15:28):
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Josh: And this exists all the way down the stack because when you're doing a training (15:32):
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Josh: run, I mean, a lot of these companies have 100,000, 200,000 GPUs that are all (15:34):
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Josh: focused on one single training run. (15:38):
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Josh: And that means they can't be serving customers. They can't be serving queries (15:41):
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Josh: to make the company money. (15:44):
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Josh: It is a net spend that they're incurring to train this model. (15:45):
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Josh: And in the case that an engineer didn't make the right decision or went down (15:49):
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Josh: the wrong decision tree, that could cost them many, many billions of dollars, (15:54):
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Josh: days, weeks of time. and in this world, those weeks cost a lot of money. (15:59):
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Josh: So basically what I realized, what I came to consensus on is they're just giving (16:03):
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Josh: themselves the best probability by having the most intelligent people on the (16:06):
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Josh: specific topic of making the correct decision trees required to get to where they want to go. (16:11):
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Josh: And that is why the stakes are so high. And that's why they're being paid billions (16:15):
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Josh: of dollars because someone like Ilya, who has been around for a decade plus, (16:19):
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Josh: is probably most likely to make the right decisions, even though it's no guarantee. (16:23):
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Ejaaz: What you've just described is the wild west and (16:28):
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Ejaaz: i love how you described it as kind of like an ai model (16:31):
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Ejaaz: josh you were like it's probabilistic we don't (16:34):
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Ejaaz: really know which path it's going to take but they're running it through this (16:37):
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Ejaaz: model and they're estimating that the output would be like this so they're spending (16:39):
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Ejaaz: hundreds of millions of dollars i thought it was beautifully done but josh if (16:43):
undefined
Ejaaz: you remember at the start of this episode i said that it ended like a fairy (16:47):
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Ejaaz: tale So right now, we're at devastation point, right? (16:52):
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Josh: I'm deep in my nightmare right now. I'm living it. I've just seen my entire (16:56):
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Josh: C-suite get poached for two and a half billion dollars. I got nothing. (16:59):
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Ejaaz: You just hustled for five to 10 years and you have nothing to show for it. (17:02):
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Ejaaz: You have a family of kids to feed and you promised them you're going to get (17:07):
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Ejaaz: them millions and nothing's happened, right? (17:11):
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Ejaaz: So here's what happens next. Do you remember way back when, and I think this (17:14):
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Ejaaz: is like a year ago, when the first AI engineer agent was released. (17:19):
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Ejaaz: It was this thing called Devin, D-E-V-I-N. Do you remember that? (17:25):
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Josh: I do, yeah. Yeah. (17:28):
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Ejaaz: Yeah. Do you remember the hype that was caused because of it? (17:30):
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Ejaaz: I think they released like this 30 second demo of this really slick AI agent. (17:34):
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Ejaaz: It's kind of like ChatGPT, but it was just doing all the coding and engineers (17:39):
undefined
Ejaaz: lost their mind. They were like, oh my God, I would. There were two camps. (17:43):
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Ejaaz: One, I would love using a tool like this and it'll enhance me 10x or whatever. (17:46):
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Ejaaz: And then a vast swathe of people online that hated it and said, (17:51):
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Ejaaz: there's no way it's as good as it is. and then, you know, A16Z jumped in. (17:56):
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Ejaaz: I think they threw them like a $200 million check, classic A16Z. (18:00):
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Ejaaz: And there was a lot of hype around this. That was like one of the clearest signals (18:03):
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Ejaaz: early on that Vibe coding was going to become a thing. Do you remember that? (18:07):
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Ejaaz: I do. So this company that created Devin is called Cognition. (18:10):
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Ejaaz: And we saw this post come up literally the day after Google's acquisition. (18:16):
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Ejaaz: So imagine you wake up one day, you realize you've lost the OpenAI deal. You're like, damn. (18:21):
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Ejaaz: And then a few hours later, So you see the tweet from Logan Kilpatrick from (18:26):
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Ejaaz: Google saying, hey, we bought you for $2.4 billion. (18:30):
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Ejaaz: You're elated until you realize that you're not getting paid any of that stuff. (18:33):
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Ejaaz: So you go into like peak depression. (18:37):
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Ejaaz: And then the next day, you see an announcement from Cognition. (18:39):
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Ejaaz: And this is the official announcement on Cognition's website. (18:43):
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Ejaaz: Cognition acquires Winsurf. (18:45):
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Ejaaz: And it's this joint announcement from the CEO of Cognition, which is Scott Wu. (18:48):
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Ejaaz: And one of the co-founders and by the way this is the co-founder that didn't (18:55):
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Ejaaz: get included in the $2.4 billion win self deal Man, that's got to sting Yeah, (18:59):
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Ejaaz: yeah, yeah Well, calling him a co-founder is kind of like a bit of a (19:04):
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Ejaaz: kind of like graceful title to give him. But his name is Jeff Wang. (19:08):
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Ejaaz: And he was the recently appointed CEO after the two co-founders just ditched him, basically. (19:12):
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Ejaaz: And they were like, okay, Jeff, you're head of BD, but we need you to step up (19:18):
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Ejaaz: as CEO because we're going to bounce and take this billion dollar check. (19:22):
undefined
Ejaaz: But you're the new CEO. So this guy, Jeff Wang, and this CEO, Scott Wu of Cognition, (19:25):
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Ejaaz: struck a deal to basically take over the remaining IP, product, (19:33):
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Ejaaz: brand, And remaining team, most importantly, 250 individuals all have families, (19:38):
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Ejaaz: mouths to feed, whatever lives to live and include them in this package deal. (19:43):
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Ejaaz: So this was the major announcement that like kind of like swept the social media (19:48):
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Ejaaz: realms and made everyone super happy and elated by this and, (19:52):
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Ejaaz: you know, gave them their happy ending. (19:56):
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Josh: What was the total cost that they paid? Did they announce that? (19:58):
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Ejaaz: That's a great question. Let me pull up this tweet of this guy called Harry. (20:01):
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Ejaaz: Oh, here we are. His title is Harry Digresses. (20:06):
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Ejaaz: It wasn't official how much they got paid for, but there were some really amazing (20:09):
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Ejaaz: deal terms in this, Josh. (20:13):
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Ejaaz: So I'll highlight a few things here. The first one is this. (20:14):
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Ejaaz: So not only were all 250 employees that were left behind going to get paid, (20:18):
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Ejaaz: but they were going to have all their cliffs removed and have accelerated vesting on all their equity. (20:24):
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Josh: Amazing. Okay. So they're making things right, or at least as best they can. (20:30):
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Josh: It's not the $3 billion dollar offer initially but like they're doing the best (20:33):
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Josh: they can and i mean as an employee of windsurf that feels really good feels. (20:36):
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Ejaaz: Really good but then you're you're wondering you're wondering well how much (20:41):
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Ejaaz: am i am i getting paid like like how much are we getting acquired (20:44):
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Josh: For yeah let's say i had one percent i mean that's 30 million dollars i was (20:47):
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Josh: about to bag and now so where are we at now it. (20:51):
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Ejaaz: Might be it might be a little less but he basically does this (20:55):
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Ejaaz: rundown and estimates it to be around 300 to 400 million dollars which is a (20:57):
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Ejaaz: significant drop from what you are going to get paid but it's also not nothing (21:04):
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Ejaaz: the other way i was thinking about it is it's probably all in cognition stock (21:09):
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Ejaaz: josh there's no way they had that much (21:13):
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Josh: Cash yeah just cash sitting on hand okay so my my 30 million dollars is now (21:15):
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Josh: three million dollars in stock for cognition which is a private company not (21:20):
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Josh: even liquid oh yeah lots of tax implications, (21:27):
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Josh: okay so i mean at least i have a job i guess is where i'll end up on this is like cool. (21:31):
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Ejaaz: I mean, now that I recounted to you, Josh, you're still screwed. (21:38):
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Josh: You're still screwed, dude. At this point, I'm just happy to be employed. (21:43):
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Josh: I'm just glad that I still have some sort of a job. I'm hopefully collecting some sort of paycheck. (21:45):
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Josh: One day, it is hopeful that the stock will be worth money, and then I'll be (21:50):
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Josh: able to sell it and cash out. But man, yeah, what a roller coaster. (21:54):
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Josh: And it kind of sets this new paradigm, right? Where you can cut, (21:57):
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Josh: you could kind of rip the value out of a company and then just kind of throw the rest to the side. (22:00):
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Josh: But it's this really interesting ideological debate you could have as a founder (22:05):
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Josh: of a company whose fiduciary duty is to serve right by the shareholders. (22:10):
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Josh: And in this case, your shareholders are the employees that you've given stock options to. (22:14):
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Josh: And in the case that they're just going away and they've destroyed the value (22:19):
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Josh: of the company, they've extracted the value of the acquisition. (22:24):
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Josh: They have kind of just left the shell of a company and left the people who are (22:28):
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Josh: responsible for putting them in that place on the side of the road and like (22:32):
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Josh: that doesn't feel very good but there's really nothing legally preventing them (22:36):
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Josh: from stopping that it's really just an ideological, (22:40):
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Josh: debate in this case it doesn't i mean i'd be pretty i'd be pretty upset sure (22:44):
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Josh: if i'm one of the founders i just made a billion i'm now a billionaire like (22:48):
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Josh: that's cool but for everyone else. It kind of leaves a bed for the. (22:51):
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Ejaaz: Majority of people. Yeah, you're screwed. I don't know whether it's because (22:55):
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Ejaaz: of all the time I've spent in web three, Josh, but I've kind of grown numb to (23:00):
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Ejaaz: all this like terrible, appalling behavior, unequitable behavior. (23:05):
undefined
Ejaaz: And so I kind of look at a story like this and I'm like, oh yeah, (23:09):
undefined
Ejaaz: he got paid billions and left the entire company and team to dry. (23:12):
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Ejaaz: Yeah. Happens all the time, I guess. But like, I'm just, I'm noticing this trend, (23:18):
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Ejaaz: particularly within AI that there's this more wild (23:22):
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Ejaaz: west kind of degenerate behavior when it comes to acquisitions like people are (23:25):
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Ejaaz: ruthless and i don't know whether this is maybe it's my naivety when it comes (23:30):
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Ejaaz: to like vc deals and acquisitions and mergers maybe i just i just don't know (23:33):
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Ejaaz: maybe this happens all the time but this seems like the most extremely skewed version of this and (23:37):
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Josh: We often refer to it on the show as like the game of thrones and (23:44):
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Josh: i don't think there's a much better description than that where it really is (23:47):
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Josh: cutthroat and this happens a lot in traditional venture and acquisitions but (23:50):
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Josh: this scale i think has never been greater and that's probably what stands out (23:53):
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Josh: among all of these headlines is just how much money is being made lost and thrown (23:58):
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Josh: around to position yourself better to get to this point of agi but you have (24:02):
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Josh: a tweet you had a post here it looks. (24:07):
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Ejaaz: Funny just to round us out josh just to like put a bit of cherry on this cake (24:09):
undefined
Ejaaz: well the tldr is like everyone hates varoon mohan the former ceo who took the (24:15):
undefined
Ejaaz: 1.5 billion dollar check or however much it was. (24:22):
undefined
Ejaaz: And everyone loves Scott Wu, the CEO of Cognition Lambs, who stepped up, (24:25):
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Ejaaz: gave the 250 employees a salary and a lifeline and accelerated vesting. (24:29):
undefined
Ejaaz: So no matter the size of the money, shout out to Scott Wu. He didn't need to do that. (24:35):
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Ejaaz: And then, you know, Varun, I wonder, you know, whether his reputation survives this. (24:39):
undefined
Ejaaz: I can see the reasoning why you would take the big check, but also like leaving (24:44):
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Ejaaz: all your employees out like that to drive without even giving them, (24:49):
undefined
Ejaaz: I don't know, a couple mil is kind of insane. But here we are. (24:51):
undefined
Ejaaz: So what's the price on your reputation? (24:56):
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Josh: Like, would you take a couple billion dollars to just go work on AGI and let the. (24:58):
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Ejaaz: Media do a thing for a couple of weeks? I know a lot of people that would do (25:02):
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Ejaaz: it. I know a lot of people. I mean, I'm one of them. (25:04):
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Josh: I'd probably do that, right? Like, a couple billion dollars? I don't know. (25:07):
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Josh: But also, yeah, it's tough. Well, it's funny because at this graphic, (25:11):
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Josh: it's a win-win for both of them. (25:14):
undefined
Josh: Like, Varun is, or I'm not sure how you pronounce his name, but he's hated. (25:15):
undefined
Josh: The CEO of Winsurf is not liked, but he's rich. and Scott Wu is loved. (25:20):
undefined
Josh: And now he has a bunch of employees that really want to work hard to make this (25:25):
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Josh: work for him and really want to add value to his company and can go to sleep (25:29):
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Josh: with a good conscience knowing he's done well and he's done right by these people. (25:33):
undefined
Josh: Whereas our windsurf buddy cannot do that. So maybe he will just be, (25:37):
undefined
Josh: one of them will be crying in their $100 million mansion while the other will (25:41):
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Josh: be surrounded by people who love him dearly. (25:45):
undefined
Ejaaz: Yeah, I think that's pretty much it. An absolutely outrageous, (25:48):
undefined
Ejaaz: but weirdly normal day in the world of AI, Josh. (25:51):
undefined
Ejaaz: We thank you guys for listening. We are trying out this new format. (25:56):
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Ejaaz: We've said this before, where we kind of talk about trending topics and be or (26:00):
undefined
Ejaaz: try and be the first guys to talk about it and put it in front of your feeds. (26:05):
undefined
Ejaaz: We are welcoming any and all feedback. So, you know, any kind of comments or (26:09):
undefined
Ejaaz: DMs, it's all open, go for it. (26:13):
undefined
Ejaaz: And if you could like, subscribe and share it with all your friends or anyone (26:16):
undefined
Ejaaz: who you think would be interested in this kind of thing, we would be eternally (26:18):
undefined
Ejaaz: grateful and we'll see you on the next episode see you (26:22):
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Josh: On the next one peace guys. (26:25):
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Music: Music (26:27):
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