On Dec. 18, a $20 billion deal by Adobe, the software giant, to buy Figma, a darling San Francisco startup, collapsed after more than a year of regulatory review.
In a blog post that day, Dylan Field, chief executive and co-founder of Figma, painted an optimistic picture of what was to come. “Figma’s best and most innovative days are yet to come,” he said. wrote.
Behind the scenes, the start-up, design platform, is picking up the pieces. In recent weeks, Figma announced that it had reset its internal valuation to $10 billion, half of what Adobe planned to pay for it. Some employees, who were supposed to reap huge profits, are deflated. Figma offered a severance package to workers who wanted to resign, and just over 4 percent, or about 52 workers, accepted the offer, said Michael Amodeo, a company spokesman.
Figma is also grappling with a tech industry that has been transformed by a frenzy around artificial intelligence. The company is trying to continue expanding at a breakneck pace to win customers, recruit new workers and appease investors, according to 15 current and former employees and investors, many of whom declined to be named due to confidentiality agreements .
“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 of what happens when a startup about to be acquired finds itself confronted by newly assertive regulators – and the deal falls apart.
In Washington, the Federal Trade Commission and Justice Department have raised questions about many deals in recent years, filing lawsuits to block some and toughening merger review guidelines. UK regulators are increasingly targeting technology deals with a focus on their future plans. In the European Union, regulators have required companies to commit to changes if they want their mergers to go through.
The consequences were considerable. Last month, Amazon called off its $1.4 billion acquisition of iRobot, the maker of Roomba vacuum cleaners, after U.S. and European regulators warned they would challenge the deal. iRobot’s chief executive resigned and the company laid off 31 percent of its staff.
In December, Illumina, a genetic sequencing machine company, agreed to sell Grail, a cancer test developer it bought in 2021 for $7.1 billion, after battling U.S. and European regulators . The FTC is also examining minority investments, such as Google, Amazon and Microsoft’s support for AI startups Anthropic and OpenAI.
Figma and Adobe backed out of their deal after the UK’s Competition and Markets Authority ruled the merger would eliminate competition in product design, image editing and illustration software . American and European regulators had also studied the acquisition.
The ripple effects are being felt deeply in Silicon Valley. For decades, investors have poured money into fast-growing startups, hoping they will reap outsized returns when the companies go public or are sold. They then reinvested part of this money in the creation of new start-ups.
“In the Silicon Valley ecosystem, you invest in your friends’ companies,” said Terrence Rohan of Other Fund and an early investor in Figma. “You take your financial success and pay it forward. »
Figma investors expressed optimism about the company’s prospects. They highlighted its growing revenue as a leading provider of software that designers and engineers use to create digital products.
Figma also didn’t touch about $290 million of its venture capital funding, two sources familiar with the matter said, and Adobe paid it a breakup fee of $1 billion. More importantly, investors say, the company has been aggressively developing new products and features, including AI capabilities, while waiting for the sale to Adobe to close.
“We’ve probably wasted a bunch of Delta Sky Miles flying back and forth across the ocean over the last 18 months, but we certainly haven’t taken our eyes off the ball,” said Andrew Reed, an investor at Sequoia Capital which sits on Figma. advice.
Asked for comment, Figma highlighted Mr Field’s project Blog post about the agreement. Adobe declined to comment. Forbes reported earlier Internal valuation and severance offers from Figma.
“Who the hell 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 to build websites and online applications, rather than expensive, cumbersome software. The start-up’s products, available for free or by subscription, allow designers to create, edit and share designs.
Adobe, which makes design software such as Photoshop and Illustrator, quickly took notice of Figma. At one point, Adobe tried to move into Figma territory with a product called XD, but it wasn’t as popular.
Figma employees, called Figmates, considered themselves scrappy newcomers. In a theme song they sang at group meetings, a rap verse contained the lyrics: “Ten or fifteen years from now, people will be saying, ‘Who the hell is Adobe?’ Figma is here to stay! »
In spring 2020, Scott Belsky, Adobe’s chief product officer, attempted to buy Figma, according to regulatory filings. Mr. Field said no. A year later, Adobe CEO Shantanu Narayen tried again. Mr. Field refused.
By 2022, Figma had expanded into more aspects of digital design. He said it was on track to generate $400 million in “annual recurring revenue,” a technical term that extrapolates monthly revenue over a year.
Its investors, including Kleiner Perkins and Index Ventures, hailed the startup as a “once-in-a-generation” company. Figma, valued at $10 billion, had informal plans to go public.
In June 2022, Adobe offered to buy Figma again, this time for $20 billion. Figma solicited another buyer and aimed for a higher price, according to a filing, but ultimately agreed to the $20 billion.
A week before the merger was announced in September, Adobe canceled work on “Project Spice,” a new product that regulators said would have put it in direct competition with Figma.
Celebration, then limbo
When Adobe and Figma revealed their deal on September 15, 2022, Mr. Field declared that the combination would be “a chance to reimagine what creative tools look like” and a way to achieve Figma’s goals even faster.
Many Figmates found it hard to believe their good fortune. Joining a start-up is often an act of faith. Employees may walk away with worthless stock, having wasted years of their lives – but sometimes they are lucky enough to discover life-changing wealth.
“Everyone who works for a technology company hopes this happens,” Mr. Pearson said.
Yet the deal was far from done. Over the next year, Figma and Adobe worked to comply with regulatory investigations into their merger in Europe and the United States.
Meanwhile, Figma tried to grow faster, in part to show it was worth the $20 billion, two former employees said. The company hired 500 people, launched a slew of features, and hosted an 8,500-person conference in San Francisco in six months.
A survey of employees after the conference last June showed increased feelings of burnout and missing deadlines, two people familiar with the matter said. Mr. Field later said that running the company while trying to strike a deal with regulators was like having two or three jobs at once.
Some recent recruits were also stuck. Stock made up a large portion of their compensation, but new hires who left before the deal closed would lose their stock, including any they acquired or earned, after working at the company for a year, according to internal communications consulted by The New. York Times.
This policy, designed to minimize taxes, applied to workers who joined in May 2022 or later. Mr Amodeo said withholding share awards for tax reasons was the norm for companies with an ongoing deal.
In June, the UK Competition and Markets Authority intervened. The regulator released a report saying Adobe and Figma could be rivals, meaning a deal would reduce competition.
To remedy this, the regulator proposed in November that Adobe sell a jewel of its business, such as Photoshop or Illustrator, or that Figma separate from its main design offering. Adobe rejected these options.
“Adobe and Figma strongly disagree with the recent regulatory findings, but we believe it is in our respective interests to move forward independently,” Adobe’s Mr. Narayen said. said when the companies abandoned the deal in December.
Figma employees understood that they would not see a windfall. Some, who had put their lives on hold while waiting for the deal to close, were relieved to have more clarity.
“For anyone who has been through an acquisition, you will know how the limbo period can be the hardest,” said Hugo Raymond, a Figma employee. wrote on X.
Mr. Pearson said he tried not to dwell on the value of his Figma shares, knowing the deal could fall through. But it was difficult, he said. He had created an independent music label which he planned to support with income from his shares.
“You begin to plan psychologically and emotionally for a very different future,” he said.
Move on
Figma moved forward. The company recently made a tool for developers, called DevMode, widely available and promoted the improvement of AI in its products.
Some employees have left. Amanda Kleha, Figma’s longtime chief customer officer, is gone, as are the Figmates who accepted the recent severance offer.
Employees and early investors expect Figma to let them sell some of their shares this year in what’s called 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 decided to be patient, while learning a lesson for their other start-ups. The bar is now higher for further negotiations, Sequoia’s Mr. Reed said, adding that a breakup fee is crucial.
The Silicon Valley circle of life – which recycles money from acquisitions into new companies – remains stuck. Adam Nash, an entrepreneur and Figma investor who has used his earnings from his startup stocks to back more than 130 companies, said he expects such deals to return in a few years.
“But that won’t happen now,” he said.
