New Exit Model and IP Dynamics: Scale AI, Windsurf, OpenAI/ Microsoft [podcast]

The video podcast discusses a “new exit model” emerging in the startup world, particularly in the context of Artificial Intelligence. Driven by the increasing value of “knowledge” (embodied in human talent and IP) and the desire to avoid regulatory scrutiny, large tech companies are opting to “dis-member” startups rather than acquire them outright.

Examples like Meta’s “reverse acquire-hiring” of Scale AI’s leadership and Google’s acquisition of key R&D teams (e.g., from Windsurf) illustrate this trend. These strategies allow big tech to gain crucial human capital and intellectual property without triggering antitrust concerns associated with full company acquisitions.

The lecture highlights that this approach, while legally permissible currently, may lead to the degradation of the “stripped” companies and could have long-term implications for market competition and innovation. The IP dynamics between OpenAI and Microsoft also underscore how intellectual property can be shared or accessed through strategic alliances, further diversifying the ways in which valuable assets are transferred in the tech landscape.

Lecture summary is available here.

OpenAI’s planned $3 billion acquisition of AI coding startup Windsurf collapsed due to tensions with Microsoft, OpenAI’s largest investor. Microsoft’s existing partnership with OpenAI entitled it to Windsurf’s intellectual property (IP), but OpenAI was reportedly unwilling to grant this access, creating a major sticking point in the deal.

The situation was further complicated by Windsurf’s reluctance to share its IP with Microsoft. The collapse of the deal created an opportunity for other companies:

Google stepped in to acquire Windsurf’s leadership team and licensed the company’s technology for $2.4 billion.

Cognition subsequently acquired the remaining assets of Windsurf, including its product, IP, and the majority of its employees.

The Windsurf deal highlights the intensifying competition in the AI sector for talent and technology.

The failed acquisition also exposed the complexities and potential limitations that can arise in partnerships between large tech companies and smaller startups in the rapidly evolving AI landscape.

In summary, OpenAI did not understand what it signed into. Yes, OpenAI is tethered to Microsoft and anything it gets belongs to Microsoft. Simply, whether the IP was created internally or acquired like the Windsurf failed deal, Microsoft is going to partake in the IP cake.

Of course, we can also learn a new exit model. Largely, Windsurf has been cannibalized without annoying the regulators. Google picked the things it liked, and the remaining parts have been absorbed by Cognition. And just like that, the exit happened and that is it!

The podcast video is at Blucera.com.

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