Cognition, an AI coding startup last valued at US$4 billion, has offered buyouts to around 200 employees from Windsurf, the rival firm it acquired three weeks ago.

The buyout offers nine months of salary and must be accepted by August 10.

CEO Scott Wu told staff they must either take the offer or commit to an “intense” work culture, including six-day office weeks and 80-hour workweeks.

On August 1, Cognition laid off 30 Windsurf employees and said no further layoffs are planned.

Windsurf employees were paid for four years’ worth of unvested equity, though the value was not disclosed.

Windsurf, previously known as Codeium, was generating around US$82 million in annual recurring revenue at the time of the acquisition.

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🔗 Source: The Information

🧠 Food for thought

1️⃣ Partial acquisitions create new employment risks in competitive AI markets

The Windsurf situation illustrates a growing pattern where AI startup employees face uncertain outcomes when competitors poach key talent through selective hiring deals.

When Google hired Windsurf’s founders and top engineers for $2.4 billion, it left over 200 employees behind at a company that lost its leadership and strategic direction within days [Original article].

This “partial acquisition” model has become common across AI companies, with similar scenarios at Character AI and Scale AI, where remaining employees either lost jobs or faced significant uncertainty after deals focused primarily on acquiring founders and key technical talent [Original article].

Research on mergers and acquisitions shows that employees often feel excluded from decision-making processes during these transitions, leading to uncertainty about their roles and decreased motivation 1.

The challenge is particularly acute in AI startups where a small number of technical leaders often hold disproportionate value, creating situations where companies can essentially be hollowed out when competitors target specific individuals rather than acquiring entire organizations.

2️⃣ Cultural integration demands can accelerate employee turnover in high-stakes acquisitions

Cognition’s explicit demand for 80+ hour work weeks and rejection of work-life balance represents an aggressive cultural integration strategy that research suggests often backfires.

Studies show that both mergers and acquisitions generally lead to negative employee perceptions regarding decision-making and motivation, with engagement scores notably lower for employees in acquired companies 1.

Cognition’s ultimatum approach, requiring immediate commitment to intense work culture with a one-week decision deadline, contrasts sharply with successful M&A integration practices that emphasize clear communication and employee involvement in the process 2.

Companies that conducted both pre- and post-change surveys during M&A maintained more consistent employee sentiment, while those that failed to address cultural integration challenges saw significant value destruction 1.

The nine-month buyout offer creates a costly filtering mechanism, but research indicates that effective change management focusing on cultural alignment can achieve similar results while retaining valuable institutional knowledge and avoiding the expense of mass departures.

Recent Cognition developments

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