Big Tech's 'Acquihiring' Trend: A Threat to Venture Capital Returns

Big Tech is increasingly engaging in "acquihiring," buying promising AI firms while leaving behind their business operations to avoid antitrust scrutiny. This trend has left venture capitalists with fewer returns than expected from traditional sales or IPOs. As a result, the VC industry's power-law model, where payoffs come from one or two runaway successes, has been deflated, with funds now returning just two times their investors' money instead of four. This trend could become permanent, further entrenching Big Tech's dominance and affecting the VC industry's path forward.

Big Tech's increasing engagement in "acquihiring" is reshaping the AI landscape and challenging the traditional venture capital (VC) model. By acquiring promising AI firms while leaving behind their business operations, Big Tech is avoiding antitrust scrutiny and altering the dynamics of the VC industry.

According to a LinkedIn post [1], top AI talent can now license intellectual property (IP) or get acqui-hired without building full startups. This trend is leading to fewer venture-backed companies, as there is no need to raise funds, dilute equity, or scale traditionally. Instead, AI talent is focusing on licensing IP or being acquired, which is faster and less risky.

The acquisition of Windsurf by Cognition AI exemplifies this trend [2]. Cognition's acquisition of Windsurf's full-stack AI IDE and autonomous coding agent, Devin, represents a landmark move in the AI talent war. This deal underscores the shift towards vertical integration, where control over the full stack—from AI models to integrated development environments (IDEs)—creates barriers to entry and enhances competitiveness.

The Windsurf acquisition highlights a broader trend of consolidation in AI coding tools. Investors should focus on firms with proprietary tech, enterprise traction, and underfollowed players [2]. However, this trend could lead to overvaluation and regulatory scrutiny. Firms like Cognition, focused on $82M ARR, are safer bets than speculative high-flyers.

The VC industry's power-law model, where payoffs come from one or two runaway successes, has been deflated. Funds are now returning just two times their investors' money instead of four [1]. This trend could become permanent, further entrenching Big Tech's dominance and affecting the VC industry's path forward.

In the biotech sector, the lack of IPOs and venture funding has led to an increase in mergers and acquisitions (M&As). Despite a historic slump in biotech IPOs and venture funding, three women-led exits broke through in a tough 2025 [3]. The bleak economic assessment comes from an investor survey and mid-year report by banking firm William Blair, which noted the lack of any IPOs in the second quarter was the first time that’s happened since the 2010 financial crisis.

In conclusion, the rise of acquihiring is reshaping the AI and biotech ecosystems. It challenges the traditional VC model and could become a permanent trend, further entrenching Big Tech's dominance. Investors should be aware of these shifts and adapt their strategies accordingly.

References:
[1] https://www.linkedin.com/posts/berriche_a-new-ma-trend-is-reshaping-the-ai-race-activity-7350850019609976834-d3uS
[2] https://www.ainvest.com/news/vertical-integration-ai-coding-cognition-ai-windsurf-acquisition-signals-era-tech-consolidation-2507/
[3] https://wewillcure.com/insights/investment/startups-face-bleak-funding-while-women-led-firms-score-rare-m-and-a-wins