Hint: The Answer Doesn’t Involve a Spreadsheet
I’m not an investor in Figma. I don’t know Figma CEO Dylan Field. And I’m not a designer. So this means I’m either perfectly positioned to give you my objective comments on Adobe’s $20 billion purchase of the startup, or totally unqualified to ask for your time on this matter. With that out of the way, here are three statements about this acquisition.
- Is Figma really worth $20 billion? I mean that’s 50x ARR!
Any spreadsheet that Adobe’s corp finance function used to justify the multiple, or the bankers presented to suggest what valuation it would take to get this deal done, is basically CYA math. There’s one single method for Adobe’s calculation:
Figma had crossed the ‘this matters to Adobe’s future’ rubicon. They hit $400m ARR and were continuing to double. Figma revenue, independent of margin, was increasingly displacing revenue that might have gone to Adobe, or more specifically, creating pricing pressure on Adobe. It was a product designed natively to be collaborative, to be easier to use than Adobe’s professional tools, and without the baggage of features and nomenclature leftover from years of software releases, platform shifts, and business model changes.
When the autonomous car company Cruise got quickly snapped up by GM in 2016 jaws dropped at the $1b+ reported price (we were small investors in Cruise). The answer there was the same: if autonomy is the potential future of your industry and you’re not yet strong in that area, what’s percent of your market cap is it worth to bring those cards into your hand. In that case it was roughly ~2.5% if I’m remembering correctly. In Adobe’s case it was a larger percentage because Figma is way further along as a business and the certainty the future of design at least looks like Figma is high. There you go.
Once the acquiring company CEO and Board is framing the transaction this way the startup has won. It’s gonna be a huge payout. And in venture, one thing is true about huge exits….
2. This transaction is not about Adobe’s failures, but actually about their success.
It’s easy to beat up on Adobe. Dumb big company couldn’t build Figma themselves so ends up having to pay an eye popping amount. But I’m going to suggest that you actually should give Adobe credit in this case for being in the position to make this offer.
It wasn’t too long ago that Adobe sold shrinkwrapped package software for a one time payment. Then the big innovation was they could decrease the physical COGS by making this upgrade downloadable. But they lacked the ongoing reoccurring revenue stream of a SaaS company. And that revenue model is so much more attractive, and given a much higher multiple by investors.
So they bit hard and moved to a largely subscription Creative Cloud model. And it, well, worked.
Over the last five years Adobe dramatically outperformed the NASDAQ index. That gap shrunk meaningfully the last few days as investors questioned the Figma transaction, but that Wall Street reaction is short-term not what matters. What you should realize is that Adobe was only able to make this acquisition because they escaped the old business model and were rewarded with a market cap that hit $200b+ over the last 12–24 months (it’s $140b as I write this post-transaction announcement). If Adobe had failed this transition they would likely be well under $100b marketcap and pretty much unable to swallow Figma (let alone a much less attractive place for the Figma team to exit to).
Leading a big public company is really hard which is why I’m inclined to say, good job Adobe! While also celebrating Figma going right after them to start.
3. Hands off this one Lina Khan.
I’m not making a legal argument here about the FTC and how you define antitrust, monopoly, etc with regards to M&A. I’m just saying I think it’s stupid and short-sighted to block a transaction like this. Adobe is giving their pound of flesh. Figma is being incredibly well-rewarded for innovation. And if you remove the potential for acquisitions by the market leader from the startup playbook you’ll actually get fewer startups going after the market leaders. And that has worse ramifications for the economy and for consumers than incremental consolidation like this. Especially since there are plenty of other tools available to accomplish one or more of the same functions Figma does.
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