Startup News 2025: Lessons from Cognition's Windsurf Acquisition – Steps for Avoiding Employee Fallout
In the ever-evolving world of startups, mergers and acquisitions often generate seismic waves across industries, presenting opportunities for growth but also risks of missteps. Recently, Cognition Labs, the AI-powered coding startup famous for its creation of the AI agent Devin, made headlines with its acquisition of Windsurf. Three weeks later, the acquisition turned controversial as Cognition offered the Windsurf staff severance buyouts and imposed demanding work conditions for those choosing to stay. Let’s dive into the story, the lessons learned, and how startups can navigate similar challenges.
Key Highlights from the Cognition-Windsurf Story
Timeline Overview
Early July 2025: Windsurf, an AI coding startup, nearly sealed an acquisition deal with OpenAI. The deal fell through when Windsurf’s top talent opted for opportunities at Google DeepMind, leaving the startup stripped of leadership.
July 14, 2025: Cognition Labs acquired Windsurf, initially emphasizing collaboration and excitement about integrating "world-class people."
Early August 2025: Cognition laid off 30 Windsurf employees, while offering severance buyouts to the remaining ~200 staff members, equal to nine months of salary. Those staying faced harsh working conditions: 80+ hours per week across six days, raising concerns about toxic workplace cultures.
Top Lessons for Startups During Mergers & Acquisitions
1. Prioritize Transparency in Communication
Acquisitions can create anxiety among employees. Cognition’s initial claims about “world-class talent integration” contrasted starkly with the eventual layoffs and buyout offers. Transparent and honest communication about the company’s intentions would have helped mitigate backlash.
2. Balance Intellectual Property and Human Talent
While Cognition notably valued Windsurf’s IP more than its talent, neglecting employees entirely caused negative publicity. Retaining motivated teams during acquisitions can often stabilize transitions.
3. Avoid Overworking Teams
Toxic conditions, such as requiring six-day weeks and excessive work hours, harm productivity, morale, and recruitment efforts. Successful startups foster balanced environments that prioritize long-term sustainability.
How Entrepreneurs Can Protect Their Teams
As entrepreneurs face similar challenges, here are steps to manage acquisitions effectively:
Conduct Thorough Due Diligence: Understand the cultural and operational differences between organizations before finalizing an acquisition.
Focus on Retention Policies: Offer retention bonuses or flexible schedules to make staying attractive for employees.
Define Work Expectations Clearly: Set realistic productivity goals without sacrificing employee wellness.
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Common Mistakes Startups Should Avoid During Acquisitions
Undervaluing Employee Contributions: Always ensure that integrations emphasize team harmony alongside tech transfers.
Delayed Communication: Silence breeds distrust. Communicate often to address employee concerns.
Skipping Retention Strategies: Without efforts to retain skilled workers, costs of rehiring can undermine efficiency and growth.
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Bonenkamp’s Advice for Navigating Acquisitions:
Never Underestimate Emotional Intelligence: Employees transitioning during acquisitions need empathy from leadership to foster trust.
Utilize Startup Tools: Employ technology to streamline integration and communication. Platforms like F/MS Startup Game provide excellent hands-on learning simulators for startup challenges.
The Cognition-Windsurf acquisition story serves as a cautionary tale for startups navigating mergers. Transparency, employee well-being, and sustainable work environments are vital, not just for reputation but for long-term success. Let’s avoid repeating Cognition’s pitfalls and take strategic steps forward.
Remember, tools like PlayPal and the F/MS AI Grant Finder aren’t just game-changers, they’re lifelines for entrepreneurs today.
1. What caused the Windsurf acquisition by Cognition Labs to become controversial?
The controversy arose when, three weeks after the acquisition, Cognition Labs laid off 30 employees from Windsurf and offered severance buyouts to remaining staff, while imposing 80-hour workweeks for those who stayed. Read more insights from TechCrunch on Windsurf's acquisition
2. Why did OpenAI’s deal with Windsurf fall apart?
OpenAI’s acquisition of Windsurf reportedly collapsed after Windsurf’s CEO and key leadership departed for Google DeepMind, leaving Windsurf stripped of crucial leadership.
3. What was Cognition Labs’ initial statement following the acquisition?
Cognition Labs initially emphasized excitement about integrating Windsurf’s “world-class talent” into their team, only to later focus more on Windsurf’s intellectual property. Read more about Cognition Labs’ transition strategy
4. What buyout terms did Cognition Labs offer Windsurf employees?
Windsurf employees were offered severance buyouts equivalent to nine months of salary.
5. What are the working conditions for Windsurf employees who chose to stay?
7. What lessons can startups learn about mergers and acquisitions from this case?
Startups should prioritize transparency, balance between IP and talent retention, and sustainable working conditions to ensure smoother transitions during acquisitions.
8. How has this acquisition impacted Cognition Labs’ reputation?
The acquisition has drawn criticism for fostering a toxic work culture and underestimating employee contributions, potentially harming its long-term reputation.
9. What tools can startups use to avoid similar pitfalls during acquisitions?
10. How does this acquisition reflect broader trends in the AI industry?
The acquisition highlights the focus on intellectual property over talent in some cases, alongside the normalization of extreme work conditions at tech-focused companies. Read Wired’s take on industry norms in AI
About the Author
Violetta Bonenkamp, also known as MeanCEO, is an experienced startup founder with an impressive educational background including an MBA and four other higher education degrees. She has over 20 years of work experience across multiple countries, including 5 years as a solopreneur and serial entrepreneur. Throughout her startup experience she has applied for multiple startup grants at the EU level, in the Netherlands and Malta, and her startups received quite a few of those. She’s been living, studying and working in many countries around the globe and her extensive multicultural experience has influenced her immensely.
Violetta is a true multiple specialist who has built expertise in Linguistics, Education, Business Management, Blockchain, Entrepreneurship, Intellectual Property, Game Design, AI, SEO, Digital Marketing, cyber security and zero code automations. Her extensive educational journey includes a Master of Arts in Linguistics and Education, an Advanced Master in Linguistics from Belgium (2006-2007), an MBA from Blekinge Institute of Technology in Sweden (2006-2008), and an Erasmus Mundus joint program European Master of Higher Education from universities in Norway, Finland, and Portugal (2009).
Violetta Bonenkamp's expertise in CAD sector, IP protection and blockchain
Violetta Bonenkamp is recognized as a multidisciplinary expert with significant achievements in the CAD sector, intellectual property (IP) protection, and blockchain technology.
CAD Sector:
Violetta is the CEO and co-founder of CADChain, a deep tech startup focused on developing IP management software specifically for CAD (Computer-Aided Design) data. CADChain addresses the lack of industry standards for CAD data protection and sharing, using innovative technology to secure and manage design data.
She has led the company since its inception in 2018, overseeing R&D, PR, and business development, and driving the creation of products for platforms such as Autodesk Inventor, Blender, and SolidWorks.
Her leadership has been instrumental in scaling CADChain from a small team to a significant player in the deeptech space, with a diverse, international team.
IP Protection:
Violetta has built deep expertise in intellectual property, combining academic training with practical startup experience. She has taken specialized courses in IP from institutions like WIPO and the EU IPO.
She is known for sharing actionable strategies for startup IP protection, leveraging both legal and technological approaches, and has published guides and content on this topic for the entrepreneurial community.
Her work at CADChain directly addresses the need for robust IP protection in the engineering and design industries, integrating cybersecurity and compliance measures to safeguard digital assets.
Blockchain:
Violetta’s entry into the blockchain sector began with the founding of CADChain, which uses blockchain as a core technology for securing and managing CAD data.
She holds several certifications in blockchain and has participated in major hackathons and policy forums, such as the OECD Global Blockchain Policy Forum.
Her expertise extends to applying blockchain for IP management, ensuring data integrity, traceability, and secure sharing in the CAD industry.
For the past several years Violetta has been living between the Netherlands and Malta, while also regularly traveling to different destinations around the globe, usually due to her entrepreneurial activities. This has led her to start writing about different locations and amenities from the POV of an entrepreneur. Here’s her recent article about best hotels in Italy to work from.
About the Publication
Fe/male Switch is an innovative startup platform designed to empower women entrepreneurs through an immersive, game-like experience. Founded in 2020 during the pandemic "without any funding and without any code," this non-profit initiative has evolved into a comprehensive educational tool for aspiring female entrepreneurs.The platform was co-founded by Violetta Shishkina-Bonenkamp, who serves as CEO and one of the lead authors of the Startup News branch. The Fe/male Switch team is located in several countries, including the Netherlands and Malta.
Mission and Purpose
Fe/male Switch Foundation was created to address the gender gap in the tech and entrepreneurship space. The platform aims to skill-up future female tech leaders and empower them to create resilient and innovative tech startups through what they call "gamepreneurship". By putting players in a virtual startup village where they must survive and thrive, the startup game allows women to test their entrepreneurial abilities without financial risk.
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