Meticulous poaching by Big Tech raids AI startups, leaving zombie companies behind

Big tech companies are systematically dismantling AI startups through talent acquisition deals that leave behind “zombie companies” stripped of their founders and key researchers. These transactions allow tech giants like Meta, Google, Microsoft and Amazon to acquire top AI talent and technology while skirting traditional merger and acquisition regulations, creating a new playbook that threatens Silicon Valley’s startup ecosystem.

The big picture: Major tech companies are using licensing deals and talent acquisitions as regulatory workarounds to bulk up their AI capabilities without triggering antitrust scrutiny.

• Companies maintain minority stakes or structure deals as licensing agreements rather than outright acquisitions to avoid FTC premerger reviews.
• The strategy emerged after regulators began blocking major tech deals, including attempts to stop Microsoft’s Activision acquisition and Meta’s Within purchase.
• “This is now a new playbook that companies are going to run,” said Matt Murphy, a partner at Menlo Ventures, a venture capital firm.

Key recent deals: Several high-profile transactions illustrate this trend, with billions flowing to founders while leaving companies hollowed out.

• Meta invested $14.3 billion in Scale AI in June, taking a 49% stake and hiring CEO Alexandr Wang, though Scale later cut 200 employees (14% of staff).
• Google paid $2.7 billion to license Character.AI’s technology and hired its co-founders, leading to about 10% of remaining staff departing within a month.
• Microsoft hired Inflection AI’s co-founders and staff for reportedly $650 million, with most employees moving to Microsoft.

What happened at Windsurf: The AI coding startup’s near-collapse exemplifies how these deals can devastate companies when negotiations fall through.

• Windsurf, an artificial intelligence coding startup, was in acquisition talks with OpenAI but negotiations stalled over antitrust concerns and Microsoft’s potential access to intellectual property.
• When talks collapsed, co-founders Varun Mohan and Douglas Chen left for Google as part of a $2.4 billion licensing deal.
• “People were crying. It was very, very emotional,” said interim CEO Jeff Wang about the all-hands meeting where he broke the news.

The zombie company problem: Venture capitalists say these deals are disrupting the traditional startup funding model and innovation pipeline.

• “There’s a big question of what their future prospects are. Frankly, you hollowed out the organization,” said Samir Kumar of Touring Capital, a venture capital firm.
• Companies that would normally pursue IPOs or traditional acquisitions are being stripped for parts, with bulk of payouts going to founders.
• “The money doesn’t flow as straightforwardly as it would in just a pure M&A transaction,” explained Rob Toews of Radical Ventures.

Regulatory concerns: A whistleblower complaint filed against Amazon’s Covariant deal highlights potential antitrust violations.

• Former Covariant employee claimed the transaction was “deliberately and unlawfully structured” to dodge antitrust scrutiny.
• The FTC opened probes into Microsoft’s Inflection deal and Amazon’s hiring of Adept employees.
• “They’re coming as close as possible to just getting under a majority stake of a company,” said J.B. Branch of Public Citizen, a nonprofit consumer advocacy group.

What’s left behind: The remaining “skeleton crews” at acquired companies face uncertain futures with limited resources.

• Covariant retains only 10-15% of its original workforce, with former employees calling it a “ghost company.”
• Character.AI lost its founders and about 25% of researchers but says it still has 70 employees and 20 million monthly active users.
• Windsurf was ultimately bought by Cognition, another AI coding startup, for $250 million—less than 10% of what OpenAI had reportedly been considering.

Industry impact: Tech experts warn this trend could stifle innovation by incentivizing founders to abandon ambitious projects for big tech paychecks.

• “This is not business as usual. This is a disruption,” said Tom Chavez, co-founder of startup studio Superset.
• The practice makes it harder for startups to compete for talent against deep-pocketed tech giants.
• Secondary offerings allowing early employees to cash out can’t compete with the massive offers from major tech companies.