After Figma's $20B Windfall Wipes Out, It's Going to Pieces
On December 18, a $20 billion deal by software giant Adobe to buy San Francisco start-up Figma fell apart after more than a year of regulatory scrutiny.
In a blog post that day, Figma chief executive and co-founder Dylan Field painted an optimistic picture of what's next. “Figma's best, most innovative days are still ahead,” he said wrote,
Behind the scenes, the start-up, a design platform, is picking up the pieces. In recent weeks, Figma said it had reset its internal valuation to $10 billion — half of what Adobe planned to pay for it. Some employees, who were supposed to get huge benefits, have been disappointed. Company spokesman Michael Amodeo said Figma offered to fire workers who wanted to leave, with just over 4 percent, or about 52 workers, taking up the offer.
Figma is also battling a tech industry that has been transformed by an artificial intelligence craze. According to 15 current and former employees and investors, it is trying to continue a rapid pace of expansion to win customers, recruit new employees and appease investors, many of whom have declined due to nondisclosure agreements. Refused to give his name.
“It really feels like the rug has been pulled out from under you,” said Jason Pearson, who left Figma in 2021 and owns stock in the company.
Figma is a case study in what happens when a start-up is on the verge of being bought and faces new assertive regulators – and the deal falls through.
In Washington, the Federal Trade Commission and Justice Department have raised questions about many deals in recent years, suing to block some and tightening guidelines for reviewing mergers. British regulators have increasingly targeted tech deals by focusing on their future plans. In the European Union, regulators have demanded that companies commit to making changes if they want their merger to go through.
The result has been widespread. Last month, Amazon canceled its $1.4 billion acquisition of iRobot, maker of Roomba vacuums, after US and European regulators threatened to challenge the deal. iRobot's chief executive stepped down and the company laid off 31 percent of its employees.
In December, gene-sequencing machine company Illumina agreed to sell Grail, a developer of cancer tests that it bought after battling U.S. and European regulators, for $7.1 billion in 2021. The FTC is also investigating minority investments, such as Google, Amazon and Microsoft's backing of AI start-ups Anthropic and OpenAI.
Figma and Adobe canceled their deal after the UK Competition and Markets Authority found that the merger would eliminate competition for product design, image editing and illustration software. US and European regulators also studied the acquisition.
Its impact is being felt deeply in Silicon Valley. For decades, investors there have poured money into fast-growing start-ups, hoping to get greater returns when the companies go public or are sold. Then he invested some of that money in creating new start-ups.
“In the Silicon Valley ecosystem, you invest in your friends' companies,” said Terrence Rohan of Verna Fund and one of Figma's early investors. “You take your financial success and pay it forward.”
Figma investors said they are optimistic about the company's prospects. He pointed to its growing revenues as a leading provider of software that designers and engineers use to create digital products.
Figma hasn't even touched about $290 million of its venture funding, and Adobe paid it a $1 billion breakup fee, two people familiar with its finances said. Most importantly, investors said, the company aggressively built new products and features — including AI features — while waiting for the sale of Adobe to close.
“We probably wasted a bunch of Delta Sky Miles flying back and forth across the ocean over the last 18 months, but we certainly didn't take our eye off the ball,” said Andrew Reed, an investor at Sequoia Capital who sits at Figma. Is.” Plank.
'Who is Adobe?'
Mr Field and Evan Wallace, a software engineer, founded Figma in 2012 with the simple idea that technological advances in web browsers would make it easier for people to design websites and apps online rather than with useless, expensive software. The start-up's products, available for free or with a subscription, allow designers to create, edit and share designs.
Adobe, which makes design software including Photoshop and Illustrator, soon looked at Figma. At one time, Adobe tried to move into Figma territory with a product called XD, but it was not as popular.
Figma's employees, called Figmates, saw themselves as worthless and useless. In a theme song they sang at group concerts, a rap verse included the lyric: “Ten or 15 years from now, people are going to say: 'Who's Adobe?' Figma is here to stay!” '
In the spring of 2020, Scott Belsky, Adobe's chief product officer, tried to buy Figma, according to regulatory filings. Mr. Field said no. A year later, Adobe Chief Executive Shantanu Narayan tried again. Mr. Field refused.
By 2022, Figma had expanded into more aspects of digital design. it said It was on track to hit $400 million in “annual recurring revenue”, a technical term of art that sums up monthly revenue over a year.
Its investors, including Kleiner Perkins and Index Ventures, hailed the start-up as a “once in a generation” company. Figma, which is privately valued at $10 billion, had informal plans to go public.
In June 2022, Adobe again offered to buy Figma, this time for $20 billion. According to the filing, Figma solicited another buyer and aimed for a higher price, but ultimately accepted $20 billion.
A week before the merger was announced in September, Adobe canceled work on “Project Spice”, a new product that regulators said would put it in direct competition with Figma.
Celebration, again in limbo
When Adobe and Figma unveil their deal on September 15, 2022, Mr Field announced The combination would be “a chance to reimagine how creative tools look” and a way to achieve Figma's goals even faster.
Many Figmates could not believe their good fortune. Joining a startup is often a leap of faith. Employees can waste years of their lives and walk away with worthless stock – but sometimes they get lucky and find a life-changing asset.
“Everyone who works for a tech company expects this to happen,” Mr. Pearson said.
Still, the deal was far from complete. The following year, Figma and Adobe worked to comply with regulatory investigations of their merger in Europe and the United States.
During that time, Figma tried to grow rapidly, partly to show it was worth $20 billion, two former employees said. The company hired 500 people, launched several features, and hosted an 8,500-person conference in San Francisco within six months.
An employee survey after the conference last June showed an increase in feelings of fatigue and being overwhelmed by deadlines, said two people familiar with the situation. Mr. Field later said that running the company felt like two or three jobs at a time while trying to close a deal with regulators.
Some recent appointments were also stuck. The stock was a large portion of their compensation, but according to internal communications seen by The New, new employees who leave before the deal closes will forfeit their shares, including those that vest or accrue after working at the company for a year. Shares made will also be included. York Times.
That policy, designed to reduce taxes, applies to workers who joined on or after May 2022. Mr. Amodeo said withholding stock grants for tax reasons is standard for companies with pending deals.
In June, the UK Competition and Markets Authority considered it. The regulator published a report arguing that Adobe and Figma could be rivals, meaning a deal would reduce competition.
As a measure, the regulator proposed in November that Adobe sell a significant part of its business, such as Photoshop or Illustrator, or that Figma discontinue its core design offering. Adobe rejected those options.
“Adobe and Figma strongly disagree with the recent regulatory findings, but we believe it is in our respective best interests to proceed independently,” Adobe's Mr. Narayan Said When the companies abandoned the deal in December.
Figma employees absorbed the news that they would not receive a windfall. Some people who had put their lives on hold waiting for the deal to be finalized were relieved to get clarity.
“For anyone who has gone through an acquisition, you'll know how the limbo period can be the hardest,” said Hugo Raymond, a Figma employee. wrote On X.
Mr Pearson said he had tried not to pay attention to the value of his Figma shares, knowing the deal could fall apart. But it was hard, he said. He had started an indie music record label which he planned to support with the earnings from his stock.
“You start planning for a completely different future psychologically and emotionally,” he said.
Figma has moved on. The company recently created a tool for developers called DevMod, which is widely available and has promoted AI enhancements in its products.
Some employees have left. Amanda Kleha, Figma's longtime chief customer officer, is gone, along with Figmates, who recently took a severance offer.
Employees and early investors are hopeful that Figma will allow them to sell a portion of their shares this year in what is known as a tender offer, although no plans have been made. The company's best option for payment now is to go public, which could take years.
Figma's investors have pledged to be patient while learning lessons for their other start-ups. Sequoia's Mr. Reed said the standards for moving deal negotiations forward are now higher and the breakup fee is significant.
Silicon Valley's life cycle – which recycles money from acquisitions into new companies – is stuck. Adam Nash, an entrepreneur and Figma investor who has used his earnings from start-up stock to back more than 130 companies, said he expects such deals to return in a few years.
“But they won't be there now,” he said.