Windsurf: The straw that broke the camel’s back

0:06This week on Great Chat, we talk about the most important event going on in tech and AI, the Backstreet Boys into the Millennium Concert. We also share our takeaways on the broken social contract for tech startups. I'm Angela, and this week I'm joined by Ashley and Sally. This podcast is brought to you by Mercury, the fintech used by over 200 ,000 companies to simplify their finances. We are huge Mercury fans at Great Chat, and we use it to run this podcast. A few of us are also current customers for our funds and startups, not to mention the dozens of founders we backed as VCs, angels, and scouts that run their business on Mercury.

0:46If you're launching a startup refund, visit mercury.com to apply online in 10 minutes or less. The onboarding couldn't be more intuitive or delightful. Quick note, Mercury is a financial technology company, not a bank. For more details, check our show notes. I feel like the odd one out for not having been in Vegas either recently or currently. I know, Angela, you and I swap places, but I think you and I are in a very different vibe. I'm repping the merch. As I was telling Ashley before we started recording, I paid$130 for this sweatshirt that probably cost$5 to make. So I'm getting my cost per word down.

1:28Angela, you're going to have to tell our non-viewing listeners what your sweatshirt says. My sweatshirt says Backstreet Boys established 1993. So, I mean, between Wimbledon, Sun Valley, obviously the most important place to be was opening night of the Backstreet Boys into the Millennium Tour in Vegas, which is where myself and 20 ,000 other fans were. And it was amazing. Were they like all millennials or is there a Gen Z contingent that has discovered the Backstreet Boys? Don't age us. I don't think anyone thinks we're not millennial. You're right. You're right. But maybe we're young millennial.

2:11They don't know that. We could be the youngest millennials. Young at heart. It was, it was all millennials, but it was all of our 1999 selves, like living our best lives. Um, but it was amazing. I still had my millennium ticket stuff from their concert in 1999, um, at my house. And I found like the original like CD with the liner notes. So it was great. Yeah, Gen Z doesn't know what a paper ticket looks like. Or like having to stand in line to buy tickets like at Tower Records. Like it was, it really brought me back. I believe I'm bringing this up, but my sister and I had like a whole pool dance routine to, like I want it that way.

2:53Is that what it's called or tell me why? I don't know. I can see everything in the lyrics. I don't remember the name of the song. I don't think Angela, I was as big a fan as you, but I do have a dance routine. They can only be done in a pool in the shallow end. And, and so watching your Instagram stories really like brought me back. It was amazing. And it was my first time in the sphere. I don't know if you guys have watched a show or a concert in the sphere before, but I mean, I'm just a stone throw away from the sphere, but I've actually, I've never been, I've died to go. I heard they're trying to bring a smaller version of it into the Bay area.

3:27Oh, of the sphere? I wonder where they would put it i think in china basin maybe oh i don't know maybe that's a rumor that i've now started um i know they're trying to bring one in london um so we'll see but i'm here for the all star which is a very different vibe than the black street boys oh yeah tell us more what is that uh sorry no i'm we're not i'm not here at the all-stars what am i saying i'm here for a summer league for the nba what is summer league that's what everyone kept saying and i was like i I'm not a basketball fan. I have no idea what Summer League means. I think it's where the rookies come play.

4:05But I'm here actually for the NBA Demo Day, which is their accelerator program where they work with a few startups. So it was really interesting to see all the innovation happening in sports. It's like the Venn diagram of nerds and athletes, like you're in the center of that right now. And pop culture, just like teetering at the top with Blackstreet Boys. What kind of startups have you seen? Like what are the technologies that the NBA is interested in investing in? Well, I saw a company called Somi, which is a sleep hardware company that I think Kosovo led the last round that helps optimize sleep.

4:38So longevity, actually, that one's for you. A lot on like court analysis. So it's very sports and sports analytics heavy, but super interesting. But speaking of sports, I know we were talking about Wimbledon. And Bill Ackman, two separate tennis performances. But yeah, big tennis week for sure. I feel like Bill Ackman has really been stepping into and living his best life. I mean, he's so active on Twitter. He's really putting himself out there. And now he is entering the arena of professional sports stars. The Twitter arena, the tennis court arena. You can just be out there doing things. It's never too late to reinvent yourself, even when you're a billionaire, which just is great.

5:32It's a lesson for us all. Can I say something though? I have no problem with Jeff Bezos throwing an extravagant wedding in Venice or Bill Ackman buying his way onto a tennis court, but if you're going to do the latter, like, I think you have to enjoy it and not take it too seriously. Did you guys see his post game statement? It was like, like excuse after excuse. Like I was winded, but it wasn't due to athleticism. And I play like college pros all the time. And I'm like, dude, just like play, like play shitty tennis, but be like, I'm a fucking billionaire. Look at me on the court. I am living my best life.

6:13So I think like that was where he missed for me. Like he should have just really leaned into it and been ridiculous and like all in and no one expected him to play pro level tennis. And instead he took himself way too seriously and then just sounded kind of whiny in the aftermath. And then, okay, speaking of billionaires, Sun Valley. Sally, did you ever cover Sun Valley when you were at CNBC? No, that was actually that was one of my dream assignments that i never got but yes it is the the funny dynamics uh of covering sun valley from my colleagues julia borston and others is you as a journalist cannot go into the hotel where everything is happening so you just stake out in front of the hotel where you see the iconic like photo of sam altman being interviewed with all the mike flags and like cnbc at the center or like buff jeff bezos in his vest I feel like that's like the classic Sun Valley photo that's like seared into my memory.

7:13Totally. I think that iconic photo of this year was Eddie Q holding up his like, like waving and it's like a printout version of his Google calendar and everyone's like, paper is still king. Maybe this is why Apple is so behind its AI strategy. They're still on paper. They haven't moved forward on the tech stack yet. speaking of media one of the things we were talking about in our group chat yesterday and a lot of twitter was talking about was um the information's new like live tv video um product launch ti tv although you can imagine how some people are like saying that acronym um i mean And Sally, I'm especially interested in your thoughts as our resident media guru.

8:03The idea of digital video is not new. And so I think the idea that everyone's like, oh, my God, the information is copying TBPN. It's like, oh, maybe Twitter needs to catch up on what's been happening in cable news for a long time. So I think it's just like we're becoming more of a visual medium overall. And video is just becoming such an integral part of it. So it makes sense for everyone to test that theory. I think like, you know, sometimes you want to emphasize on what you do well and stick to that. I haven't seen the information video roll out. I just saw the news headlines of it. So Zuck made an appearance for the first one.

8:46Oh, he did? They pulled a heavy hitter. I haven't had a chance to listen beyond like a tiny clip that was going around. I think that like I so agree with you, Sally. Like it's so important to, I mean, it's both important to experiment. And so the people who were outraged that the information was doing this, I was like, that's ridiculous. People are going to vote with their views. And like kudos to TBPN for like creating a format that has gotten people so excited and feels fresh, even if like streaming isn't new. But I also agree that you have to lean into your strengths. And I think the interesting thing to watch here will be TBPN, I think, has been successful because it has really unabashedly embraced tech news as entertainment.

9:33Right. They're not like purporting to be a journalistic outfit. They are having fun with it, like everything about the way that they do. They are like technology bros, technology brothers. They're just like leaning into it and leaning into the cultural zeitgeist. And then I think it was interesting that the information came out of the gate with some messaging that was very much like news from the people who are breaking and shaping it, like not just commentary. And I think that sounded like a little bit of a dig at TBPN. Maybe I am projecting that. And that's fine. I do think there's a question of like, who are the people who want to be entertained by tech news?

10:13And who are the people who want to listen to journalists talk about breaking news? And I think those might be different audiences. And so it'll be interesting to see if the format that has worked so well for TVPN and Sally, as you've talked about, I think it's not like necessarily that everyone's tuning into the live stream. It's like the clippable parts of those interviews that people are resharing on Twitter, which feels like their core network. Like, I don't know if those same dynamics will play out for the information. And so I think that's going to be really fun to watch. To the information's point about just like where the people are breaking the news, we, when NBC News invested in Recode, we had this deal where whenever Recode broke the news, they would go on CNBC right away.

10:58And so there was a lot of like coordinating happening between the digital front and then from the print front. And because you want to disseminate the eyeballs as wide as you can. And so you want to do it where people go. So I'm cheering for anyone who, you know, tries to tries new things and sees where it goes. They're going to get a lot of insights from the first few episodes on like where the audiences are. I think when you say like the information's model, which is also different from, let's say CNBC or even the New York Times is they've Jessica's really focused on doing independent reporting as her like main thesis.

11:37So all of her majority of her content is exclusive to the information. That's what makes it unique. That's what makes the subscription business work for the information that doesn't work for maybe, let's say, Business Insider that covers all news. And so I think that's where there's the unique advantage. Maybe the rollout was a little bit rocky, but the reason why people still tune in and, you know, it's one of the most valued subscription business in the tech news is because they have insights that no other people can. And I think the like windsurf information, like the story from this morning is kind of like tested that like, yes, everybody was trying to do this, like investigative journalism online.

12:16But ultimately, the like full information came from the information because that's where it like that's the reporter's job to do so. This is a video, but another format podcasting that's made this work is The Daily from New York Times, right, where they have journalists on daily to talk about big stories. And those journalists have, I think, almost always done like direct reporting themselves. And so it is a really like there's a lot of depth to the perspective that they bring. And it's not about being the first or covering the broadest. It's like here's someone who's gone deep on this and also can bring some of like the process.

12:52behind it and bring in like here's some of the interviews did etc but to your point there's like a you know michael barbaro is often like the personality that holds it all together and interviews exactly so um so yeah i'm excited to see i'm excited to see how this evolves i also think they should change their name um i i know it's maybe would feel like capitulating i i sally i saw you reply to someone who suggested til the information live which is so good til is also So today I learned like it's like so perfect and elegant. So Jessica, on the off chance you are listening to this podcast, I say just go for it.

13:32Like crowdsource that, you know, like people will only give you credit for that. So that's that's my hot take. Ashley, it's so interesting what you said and Sally, the same point that you were making, which is, is there a distinction between news as entertainment and actual reporting effects? And I feel like the past weekend and just the total frenzy across social media and news outlets around what was happening, what wasn't happening at Windsurf, like everyone had an opinion and no one had any facts. And so the lines really started to blur. So I think that'll pull us into our big topic today.

14:10For our listeners who are not familiar with what we're referring to, the big news that was making the headlines here in the Silicon Valley circles was the rumored acquisition of Windsurf by OpenAI for$3 billion. And I think the news was actually leaked back in April. It was a few months ago. It's sort of been in the rumor mill that this acquisition was happening. And then nobody heard anything from it. OpenAI didn't confirm, Windsurf didn't confirm. And then this past weekend, news came out that the OpenAI deal had fallen apart, the acquisition wasn't happening, and that Google was actually stepping in as a white knight.

14:52Sundar really, I guess, displaying that masculine energy and coming in with a$2.4 billion licensing deal. So not an acquisition, but a licensing deal, which basically paid out investors and then they would hire the founders and key management team that potentially leave the rest of the company out in the cold. And that was the point that got the Twittersphere up in arms. And then the final plot twist that just happened yesterday was that Cognition, which is a competitor to Windsurf, stepped in to say that they were going to buy the remaining assets and carry over the employees from Windsurf. So like a truly crazy 72 hour news cycle.

15:37Oh my gosh. It kind of reminded me of the Sam Altman ouster from OpenAI where it was like a week before Thanksgiving and all the group chats were on fire and there was like the play by play. And speaking of TBPN, like they were like trying to report out like rumors that they were here. Everyone was. and it felt like we were all kind of like glued to our Twitter feed and group chat for the latest and actually the information. Wow, everything ties together. The information, I think this morning maybe put out a piece called like 96 Hours of the Wind Surf Google Deal. And so it really was like so many twists and turns and white nights on white nights in terms of like making everyone on making everyone whole.

16:27I think one thing we were talking about in our group chat was like, why was this the like, you know, hackquisition or whatever we want to call it, acquihire, licensing deal. Oh yeah. Everyone's racing to name it. There's like, that one is courtesy of MG Siegler. There's like hackquisition and hackwhire, which is a little awkward to say, but I think it's good. And then I think, um, Billy, um, from, uh, from category ventures was calling it like blitz hiring. So we'll see which, which terminology emerges is the way to talk about this like new form of MNA. Um, but like there have been other, other weird deals, right?

17:10Like scale was a little bit different, but also weird, right? Character AI inflection. like this is not the first sort of workaround for more straightforward M &A that we've seen. And so one of the things I was thinking a lot about over the weekend was like, why is everyone up in arms about Windsurf? Because it felt like there was so much advocacy for what it looked like. You know, I think it was reported that the founders and like 40 employees were brought over to Google and those people did extremely well in that deal. But initially, like the rest of the company was kind of orphaned, right? It was like top talent, well, I don't, a certain subset of top talent was gone.

17:55They left like a hundred million in, but it was like very unclear what was going to happen to those people. And, and people were kind of up in arms on the Twitter feed. And, you know, there were some, I think, very genuine posts from founders who were sharing stories about like their acquisitions and how they, you know, helped forward vest employees and made sure everyone did well. And now we have this new paradigm where like founders are just leaving their companies for these multi-billion dollar, multi-billion dollar deals. And so I I don't know, any thoughts on like why it was Windsurf that broke the camel's back and finally like led to this broader dialogue?

18:36I feel like there's so many, I mean, there's so many hypotheses you could put out there. Like I think, you know, two things make a coincidence, but do three things make a conspiracy type of, you know, the first two people like, oh, like what's happening? And then now this is like, OK, this is a real pattern and we should really be concerned. I think in the first two cases, also with inflection and character, there was a lot of existing relationship between the founders and the companies that ultimately acquired them. Right. Like there was, you know, I think the founder of character knew the Google team really well.

19:06And similarly, there was a lot of shared investors between Microsoft and inflection. So I think people almost wrote those off as, oh, just like inside deals. And those businesses were also, I think, much more nascent in terms of like actual commercialization or revenue if they had any and probably smaller teams. And I think Windsurf had, you know, almost 100 million in revenue. I don't think there were that many pre-existing ties. And so I think it was just a different setup. And, you know, I think it had something like 250, 300 employees. So just a different beast when it came to. Yeah, I think it's the rug pull that like made it relatable all of a sudden that like, oh, this could happen to me also if I was working at these companies.

19:50Because like to your point about the examples you listed, actually, is that others, it was in a way cleaner. But this was you had 250, 300 employees that thought for many months that they were going to all work at OpenAI. all of a sudden overnight they realized that oh a very small fraction of the employees were going to go and they're going to get the lion's share of the the the investment and i think this is where like communication is so key and that's where a lot of this fell apart because people started to speculate and like the windsurf team did not communicate to their team very well and that's why the juxtaposition with cognition and and their ceo and their rollout plan and how clear that was all of a sudden you know they had all these champions around them or people cheering the cognition and the future windsurf team on is because that they communicate that this this so well so there's so many touch points that were so relatable to everybody beyond the point that like there were investors that like you know you it's windsurf happened to be one of the like hottest companies on the market right now with cursor and and cogen is really um it's a topic that people love to talk about.

21:02But then the debate around the social contract in an industry where Silicon Valley is so small, where the beauty of San Francisco is you come here and you're one person removed from pretty much any investor or any CEO you really want to talk to if you make the effort. And so I think that was the bigger debate that really sparked over the weekend. I think there's also probably coming on the heels of what we've just talked about on the pod these past few episodes around the hiring that Meta has done where you're paying researchers 100 million. I think there's just heightened fear amongst people who aren't in that category.

21:41There's a select few who are going to be in that category and everyone else. And I think this news is coming on the heels of that, which to Sally's point is just highlights that rug pull of how do you think about where you work if you are not one of the dozen people that could get acquired for$100 million. Totally. And I think the startup gamble is people should always go in knowing the most likely outcome is your equity is worthless, right? But the sort of promise and then the reason you would, for financial reasons, join a startup over a bigger technology company is if it wins big, everyone wins, right?

22:21Of course, employees will get squeezed in like more middling outcomes, especially if the pref stack is like, you know, super tilted in favor of investors getting paid out ahead of employees. But like for the big wins, like everyone shares in those. And I think it's very jarring to have a$2.4 billion outcome for a company that I think Windsurf is like just a couple of years old. It's a pretty new company. almost always like that would be a great outcome for anyone. And the fact like most people were, looks like they were going to be left out in the cold, that like really breaks like a core, a core promise of, you know, if you get lucky at a startup, you get really lucky.

23:06And that's, that's what makes it worth it versus optimizing for like a little bit more cash comp or a little bit more stability at a bigger company. And I, I kind of wonder, I mean, we talk about how like there's sometimes like, like an invisible coordination layer on group chats. And I was thinking, oh, I wonder, I wonder if there are some group chats that are actually like rallying people to speak out because it doesn't matter if you, I don't know a single Windsurf employee, I don't think. But like, this is kind of existential for the startup world. Like if startups can't hire great talent because that talent is like, even if this works, there might be a rug pull, like this new sort of paradigm of M &A is tilted against me.

23:57That's really bad. If the obvious choice for everyone is just to go work at Google or OpenAI or Meta, what does that mean for the startup ecosystem? And so that's bad for founders. It's bad for investors. It's and so I'm like, oh, OK, I wonder if this was Angela, to your point, like the tipping point, like there have been enough of these now where people are like, oh, shit, this could have some real real ramifications for the broader ecosystem and the perception of like whether startups are worth the risk at all. I think also it changed. I was thinking about this part of if it changes how employees negotiate early stage company contracts.

24:39So like if you're an executive or senior executive joining an early stage company, you have more opportunities to go back and forth on changing the agreement. So you have your double trigger clause that allows you for if there's an acquisition that, you know, your shares accelerate, your vest accelerates. But even, you know, you can also put in the language that like if that happens before your one year cliff. And I wonder, I'm sure some of the like high talented folks are going to start negotiating those into the contracts. And maybe that's fair. I agree with the like the having a one year cliff to exist.

25:16But if there is an acquisition, should that be treated differently, especially given that like some of these like product development is happening in such a narrower scale now because everything is moving so quickly. And products are being developed thanks to AI a lot faster if that also needs to be adapted to it. I don't know if the power dynamic is the right word, but like economic spoils just get moved around depending on different points in the cycle. Right. Like during the Zerp era, like employees were definitely getting the better end of the deal. And now the macro is tougher and everyone's everyone's elbows are out a little bit more.

25:52Like internally, we call it like the New York mindset versus the SF mindset. You know, like, sorry, like hedge fund sort of like, OK, like money is money and like we're looking out for our best interests. And then, you know, the Silicon Valley view is like, oh, we're all family and relationships are long. But when times are tough, maybe things tilt in different directions. But I think even before we got into this whole AI hiring frenzy, the social contract was really strained because the vast majority of startups are not in the category of windsurf or inflection or character. And they're facing a lot of issues with their employees.

26:28Like they're a lot of company raise really high valuations and they're facing down rounds, even in terms of their internal 409A valuation. So not from like an external mark, but that means that a lot of employees equity is is not worth much anymore. And and there's no path to liquidity because the IPO markets are closed. And, you know, for the vast majority of companies, no one wants to buy your secondary. And so even before we got to the whole morass of what we're talking about now, I think employees are feeling quite stressed about what the social contract with working at a tech startup was.

27:02I wonder if some of – Sally, you made a point like reputations are long in the tech ecosystem and they usually incentivize good behavior, right? Like if you're an investor and a founder in fund one, their company didn't work out, but maybe they'll be like the fund returner by fund three. And it just makes like everyone kind of like beyond good behavior. You sort of never know where things are going to come from. But I think there's this feeling of like everything's going to be decided in the next couple of years. Like with AI, like everyone is racing and it's just making people do some like crazy, crazy things and sort of lean more into like short term thinking because maybe short term is all that matters.

27:49Short term is going to define the winners. And so that sort of like longer arc of relationships that I think generally does incentivize good behavior in Silicon Valley is less resonant in this moment for some people. And then, Angela, to your point, it's so interesting to think about the non-financial ways that the social contract with employees has been renegotiated just over the past five years. You think about, you know, sort of some of like the peak employee power during the pandemic. I mean, companies were like scrambling to make employees happy. And some of that was in the form of like all these new employee benefits and mental health benefits.