Recovering from a Lost $20 Billion Deal: A Start-Up’s Journey
On December 18, the much-anticipated $20 billion acquisition deal between Adobe, the software giant, and Figma, a San Francisco startup, crumbled after more than a year of regulatory scrutiny.
Optimistic Outlook Amidst Setback
Dylan Field, Figma’s CEO, expressed optimism about the company’s future in a blog post, assuring that Figma’s best and most innovative days lie ahead.
Navigating the Aftermath
However, behind the scenes, Figma, a design platform, is grappling with the aftermath. The startup recently announced a reset of its internal valuation to $10 billion, half of what Adobe intended to pay. Some employees, who were anticipating substantial windfalls, are now facing disappointment. Figma offered severance packages, with around 4%, or approximately 52 employees, accepting the offer.
Tech Industry Evolution and AI Challenges
Figma is also contending with the evolving landscape of the tech industry, marked by a heightened focus on artificial intelligence (AI). The company is striving to maintain its rapid pace of expansion to attract customers, hire new talent, and satisfy investors, as revealed by current and former employees and investors, many of whom preferred anonymity due to nondisclosure agreements.
Regulatory Hurdles and Industry Impact
The collapse of the Adobe-Figma deal serves as a case study illustrating the challenges faced by a startup on the verge of acquisition when confronted with assertive regulators, leading to a deal’s unraveling. Regulatory bodies like the Federal Trade Commission (FTC) and the Justice Department in the United States, as well as British and European regulators, have raised questions and imposed stricter guidelines on various deals.
The repercussions of regulatory interventions are widespread. Notably, Amazon abandoned a $1.4 billion acquisition of iRobot, and Illumina sold Grail, a cancer testing developer, after regulatory challenges. The FTC is also scrutinizing minority investments in AI startups, such as those made by Google, Amazon, and Microsoft in Anthropic and OpenAI.
Deal Dissolution Details
In the case of Figma and Adobe, the deal disintegrated after the UK’s Competition and Markets Authority found that it would eliminate competition in product design, image editing, and illustration software. US and European regulators were also involved in scrutinizing the acquisition.
Silicon Valley’s Response
The impact of the failed deal is deeply felt in Silicon Valley, where investors traditionally poured money into promising startups, anticipating substantial returns. Figma’s investors, including Sequoia Capital, Kleiner Perkins, and Index Ventures, remain optimistic about the company’s future, emphasizing its growing revenue as a primary provider of software for digital product design.
Figma’s Evolution and Recognition
Figma, founded in 2012 by Dylan Field and Evan Wallace, initially aimed to simplify website and app design through browser-based tools. Adobe, a maker of design software like Photoshop and Illustrator, recognized Figma’s potential but faced challenges in directly competing with the startup’s popular product, XD.
Growth Amidst Setbacks
Despite the setback with Adobe, Figma expanded its digital design offerings and reported a trajectory towards $400 million in annual recurring revenue by 2022. In June 2022, Adobe made a $20 billion acquisition offer, and although Figma sought other buyers for a higher price, it eventually accepted the offer.
Acceleration and Internal Strain
As the merger faced regulatory scrutiny, Figma accelerated its growth efforts to justify the $20 billion valuation. The company hired 500 employees, introduced numerous features, and organized a massive conference with 8,500 attendees in San Francisco within six months. An internal survey after the conference revealed increased burnout and feelings of being overwhelmed among employees.
Challenges for Recent Hires
Some recent hires were also caught in the crossfire. Stock was a significant part of their compensation, but the new staff who left before the deal closed would forfeit their shares, including those they had vested, or earned, after working at the company for a year, based on internal communications seen by The New York Times.
Regulatory Intervention in the UK
The UK’s Competitions and Markets Authority published a report in June, suggesting that Adobe and Figma could be competitors, leading to reduced competition with the merger. In November, the regulator proposed the divestiture of a significant part of Adobe’s business or the spin-off of Figma’s core design offering as a remedy. Adobe rejected these options, leading to the abandonment of the deal in December.
Employee Disappointment and Relief
Figma’s employees faced disappointment as the anticipated windfall vanished, but the company moved forward, recently releasing a developer tool called DevMode and promoting AI enhancements. Some employees left, including the Chief Customer Officer, Amanda Kleha, and those who accepted the severance offer.
Anticipating Future Opportunities
Despite the setback, Figma’s employees and early investors expect opportunities to sell shares through a tender offer later this year, with the possibility of going public as the company’s primary payout option in the future. Figma’s investors, including Sequoia Capital, acknowledge the need for patience and emphasize the importance of breakup fees in deal negotiations. The cycle of cash recycling in Silicon Valley’s startup ecosystem remains disrupted, with investors anticipating a return of such deals in the coming years.
In summary, the collapse of the Adobe-Figma deal highlights the challenges faced by startups in the acquisition process, particularly when regulatory scrutiny becomes a significant hurdle. Figma is now navigating a changed landscape, focusing on growth and innovation while its employees and investors await future opportunities for returns