On December 18, a $20 billion deal for software giant Adobe to acquire San Francisco startup Figma collapsed after more than a year of regulatory scrutiny.
In a blog post that day, Figma CEO and co-founder Dylan Field painted an optimistic picture of what might happen next. “Figma's best and most innovative days are yet to come,” he writes.
Behind the scenes, a design platform startup is picking up the pieces. In recent weeks, Figma announced that it had reset its internal valuation to $10 billion. This is half of what Adobe was scheduled to pay. Some employees who would have made huge profits are depressed. Figma offered severance packages to workers who wanted to quit, but just over 4%, or about 52 employees, accepted the offer, said Figma spokesman Michael Amodeo.
Figma also addresses a technology industry that has been transformed by the frenzy surrounding artificial intelligence. The company is trying to continue expanding at a breakneck pace to win customers, hire new workers and appease investors, many of whom said 15 current and former employees and investors said. The person requested anonymity due to a non-disclosure agreement.
“It really feels like the rug was pulled out from under you,” said Jason Pearson, who left Figma in 2021 and still owns a stake in the company.
Figma is a case study of what happens when a start-up company about to be acquired faces a newly aggressive regulator and the deal falls through.
In Washington, the Federal Trade Commission and Justice Department have questioned a number of recent deals and filed lawsuits seeking to block some and tighten merger review guidelines. UK regulators are increasingly targeting technology deals with a focus on future planning. In the European Union, regulators are asking companies to commit to making changes if they want a merger to succeed.
The impact is growing. Last month, Amazon called off its $1.4 billion acquisition of iRobot Inc., maker of the Roomba vacuum cleaner, after U.S. and European regulators threatened to challenge the deal. iRobot's CEO has resigned and the company has laid off 31% of its workforce.
Gene sequencing company Illumina agreed in December to sell cancer test developer Grail, which it acquired in 2021 for $7.1 billion, after a battle with U.S. and European regulators. The FTC is also scrutinizing minority investments in AI startups Anthropic and OpenAI, which are backed by Google, Amazon, and Microsoft.
Figma and Adobe have ended their partnership after the UK Competition and Markets Authority ruled that the merger would eliminate competition in product design, image editing and illustration software. Regulators in the United States and Europe were also considering the deal.
The ripple effects are being felt deeply in Silicon Valley. For decades, local investors have poured money into fast-growing startups, hoping for huge profits when the companies go public or are sold. They then put some of that money into creating a new startup.
“In the Silicon Valley ecosystem, you invest in your friends' companies,” says Terrence Rohan of Others Fund, one of Figma's early investors. “Take financial success and pay it forward.”
Figma investors said they remain optimistic about the company's prospects. They pointed to the company's growing revenue as a leading provider of software used by designers and engineers to create digital products.
Figma also kept its roughly $290 million in venture funding intact, and Adobe paid it a $1 billion break-up fee, according to two people familiar with the company's finances. Most importantly, the company aggressively developed new products and features, including AI capabilities, until the sale to Adobe was completed, investors said.
“We may have wasted a ton of Delta Sky Miles traveling back and forth across the ocean over the past 18 months, but we haven’t taken our eye off the ball,” said Figma investor Sequoia Capital Investments. says Andrew Reed. board.
Asked for comment, Figma pointed to Field's blog post about the deal. Adobe declined to comment. Forbes previously reported on Figma's internal evaluation and severance package proposal.
“Who the hell is Adobe?”
Field and software engineer Evan Wallace started with the simple idea that technological advances in web browsers would make it easier to design websites and apps online, rather than using clunky and expensive software. Originally, I founded Figma in 2012. The startup's products are available for free or on a subscription basis and allow designers to create, edit, and share their designs.
Adobe, which makes design software such as Photoshop and Illustrator, quickly took notice of Figma. At one point, Adobe tried to enter the Figma realm with a product called XD, but it wasn't as popular.
Figma's employees were called Figmates and considered themselves a fractious up-and-comer. One of the rap lines in the theme song they sang at group gatherings included the following lyrics: figma is here to stay! ”
In spring 2020, Adobe Chief Product Officer Scott Belsky attempted to acquire Figma, according to regulatory filings. Mr. Field said no. A year later, Adobe CEO Shantanu Narayan tried again. Mr. Field refused.
By 2022, Figma has expanded to more aspects of digital design. The company said it is on track for $400 million in “annual recurring revenue” (a technology term that estimates monthly revenue over a year).
The company's investors, including Kleiner Perkins and Index Ventures, lauded the startup as a “once-in-a-generation” company. Figma was privately valued at $10 billion and had unofficial plans to go public.
In June 2022, Adobe once again offered to acquire Figma, this time for $20 billion. Figma sought a higher price from other buyers, but ultimately accepted $20 billion, according to the filing.
A week before the merger was announced in September of that year, Adobe halted development of a new product called Project Spice, which regulators said could put the company in direct competition with Figma. Ta.
Celebrate, then feel lost
When Adobe and Figma announced their partnership on September 15, 2022, Field said the partnership was an “opportunity to reimagine what creative tools look like” and how Figma could achieve its goals even faster. I declared it would be.
Many Figmates could not believe their luck. Joining a startup is often done on a whim. Employees can waste years of their lives and retire with worthless stocks, or they can be lucky enough to earn life-changing wealth.
“Everyone who works at a technology company wants this to happen,” Pearson said.
However, the agreement was far from complete. Over the next year, Figma and Adobe sought to comply with regulatory investigations regarding their merger in Europe and the United States.
During that time, Figma sought to grow faster, in part to show it was worth $20 billion, two former employees said. The company hired his 500 people, launched a series of features, and within six months he was hosting an 8,500-person conference in San Francisco.
Two people with knowledge of the situation said a survey of employees after a conference last June showed a sharp rise in burnout and feelings of deadline pressure. Mr. Field later said that running the company while trying to close deals with regulators felt like juggling two or three jobs at once.
Some recently hired employees also found themselves stuck. Stocks made up the bulk of their compensation, but new hires who left before the deal closed received no vested stock or earnings after one year of service, according to internal communications seen by The New. He was to relinquish his shares, including those that were sold to him. York Times.
The policy was aimed at minimizing taxes and applied to workers who joined the company after May 2022. Amodeo said withholding equity grants for tax reasons is standard practice for companies with pending transactions.
In June, the UK Competition and Markets Authority also weighed in, with the regulator releasing a report arguing that Adobe and Figma could become rivals and that a partnership would reduce competition.
As a remedy, regulators in November suggested that Adobe sell off its business crown jewels like Photoshop and Illustrator, or that Figma spin off its flagship design products. Adobe rejected those options.
“While Adobe and Figma strongly disagree with the recent regulatory findings, we believe it is in our respective best interests to move forward independently,” Adobe's Narayan said after the companies signed a deal in December. stated when it was discarded.
Figma employees listened to the news that there was no windfall. Some people who had put their lives on hold waiting for the deal to be completed were relieved to have clarity on the situation.
“If you've ever been through an acquisition, you know how tough these frontier times can be,” says Hugo Raymond, a Figma employee. I have written With X.
Pearson said he was aware that the deal could fall through and was trying not to get hung up on the value of Figma's shares. But it was difficult, he said. He started his own independent music record label and planned to support it with proceeds from the stock.
“Psychologically and emotionally, you start planning for a completely different future,” he says.
move on
Figma has gone even further. The company recently made a developer tool called DevMode widely available to drive AI enhancements to its products.
Some employees have retired. Amanda Kureha, Figma's longtime chief customer officer, is leaving the company, as well as her Figmates, who recently accepted her resignation offer.
Employees and early investors hope that Figma will be able to sell some of its stock in a so-called tender offer this year, but no plans have been made yet. The company's best option for dividends right now is going public, but that could take several years.
Figma's investors decided to persevere, learning a lesson for other startups. Sequoia's Reid said the hurdles to negotiating a deal are now even higher, adding that penalties are critical.
Silicon Valley's cycle of recycling acquisition funds into new companies remains stalled. Entrepreneur and Figma investor Adam Nash, who has used his startup stock proceeds to back more than 130 companies, expects such deals to return within a few years. He said he was there.
“But that won't happen now,” he said.
