Why Figma is Worth $20B And Other Observations From The Adobe Acquisition
Hint: The Wordplay 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 ways I’m either perfectly positioned to requite 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 well-nigh this acquisition.
- Is Figma really worth $20 billion? I midpoint 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 standing to double. Figma revenue, self-sustaining of margin, was increasingly displacing revenue that might have gone to Adobe, or increasingly 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 valise of features and nomenclature leftover from years of software releases, platform shifts, and merchantry model changes.
When the voluntary car visitor Cruise got quickly snapped up by GM in 2016 jaws dropped at the $1b reported price (we were small investors in Cruise). The wordplay 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 specimen it was roughly ~2.5% if I’m remembering correctly. In Adobe’s specimen it was a larger percentage considering Figma is way remoter withal as a merchantry and the certainty the future of diamond at least looks like Figma is high. There you go.
Once the acquiring visitor 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 well-nigh huge exits….
2. This transaction is not well-nigh Adobe’s failures, but unquestionably well-nigh their success.
It’s easy to write-up up on Adobe. Dumb big visitor couldn’t build Figma themselves so ends up having to pay an eye popping amount. But I’m going to suggest that you unquestionably should requite Adobe credit in this specimen for stuff 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 subtract 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 increasingly attractive, and given a much higher multiple by investors.
So they bit nonflexible 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 worldly-wise to make this vanquishment considering they escaped the old merchantry 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 vacated a much less lulu place for the Figma team to exit to).
Leading a big public visitor is really nonflexible which is why I’m inclined to say, good job Adobe! While moreover triumphal Figma going right without them to start.
3. Hands off this one Lina Khan.
I’m not making a legal treatise here well-nigh the FTC and how you pinpoint antitrust, monopoly, etc with regards to M&A. I’m just saying I think it’s stupid and short-sighted to woodcut a transaction like this. Adobe is giving their pound of flesh. Figma is stuff incredibly well-rewarded for innovation. And if you remove the potential for acquisitions by the market leader from the startup playbook you’ll unquestionably get fewer startups going without 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 misogynist to succeed one or increasingly of the same functions Figma does.