Why Figma Is Worth $20B and Other Observations from the Adobe Acquisition | Hacker News Reader

Why Figma Is Worth $20B and Other Observations from the Adobe Acquisition

hunterwalk.com

73 pointstodsacerdoti70 comments

Weird article. Point 1 is exactly correct: This is a purely defensive play designed to protect their existing market cap. Figma and Canva put the once ironclad Adobe cashflows at risk, simple as. In that sense, paying 20 billion to protect and enhance your market cap is a no brainer.

Point 2 and 3 however I disagree with heavily. Figma purchase is exactly about Adobe's failures to build a good competitor, its not like Figma is this new arrival, people were raving about it for quite some time already and Adobe had a lot of time to respond. This purchase shows that Adobe's cashflows are nowhere near as secure as they were thought to be, hence the rerating on the stock is not a simple blip.

And that Lina Khan should stay off this? Give me a break, this is exactly what she should be targeting if she is serious about antitrust. Adobe + Figma bundle destroys this market for anything not named Canva for at least 5-6 years. The idea that FTC should reward innovation by allowing monopolistic/oligopolistic buyouts for big prices is how Whatsapp and Instagram ended up with Facebook.

I agree. The whole point of a free market is that it should lead to a competitive market, in which profits shrink and consumer surplus expands. He literally says that Figma is threatening Adobe's margins. Stopping mergers of companies like this is ... exactly what antitrust is for?

I think the argument is that Figma might not exist in a world where such deals are blocked (or future Figmas may not come into existence if this deal is blocked), and thus would lead to more market harm than it would help. I'm not sure I agree with that reasoning, but it is plausible.

If that is the case that means that investors cannot see themselves competing with established players in the market. That would be an indication that the current market dominators should be broken up, not that they should be allowed to acquire more companies.

400 million revenue, 20 billion acquisition price. Sounds like free market to me? They paid up to protect their business and everyone walked away happy.

> everyone walked away happy

Except Figma customers.

Why wouldn’t they be happy? Nothing bad has happened to them. I know some are grumpy on Twitter but none have articulated a real harm. It’s just as likely this is good for them, like how Microsoft really improved GitHub.

They know, as everyone else does, how Adobe operates.

> none have articulated a real harm

Higher prices.

> It’s just as likely this is good for them

How?

Pointing toward an exception seems to prove the rule that is worrying Figma customers like me.

> like how Microsoft really improved GitHub.

There are a lot of GH customers that are upset over the way reliability has tanked since Microsoft acquired them

> everyone walked away happy

Only if you define the term everyone to be the VCs.

figma raised $330+ million over the years...have there been any public breakdowns of the VC/founder/employee equity split?

In my mind, points 2 and 3 conflict with point 1. If Adobe actually believed Figma was an existential threat to the future of their business, and they decided to use their current dominance to subsume it, that's equivalent to admitting failure at some level. And if that's true, then they're trying to stamp out any meaningful competition, which is the kind of thing the FTC should at least be paying attention to.

Just commenting because most of the replies seem to forget that the FTC doesn’t regulate competition because MONOPOLY but because their job is to ensure customers aren’t screwed over.

No one here seems to have raised a cogent argument that this is an unalloyed positive for customers (disclaimer: I have an adobe CC subscription and it is the buggiest piece of garbage around).

This is bad for customers and blocking the deal, based on current history, is the right course. Adobe can use that $20 billion to instead build a not-shit product.

Agreed, I think it's a big failure of the imagination to think that a monopoly-cementing acquisition is the only way to encourage more competition. A world in which large dominating companies can be overthrown by a promising upstart is, for me at least, a way more exciting world in which to start a new company. Adobe would not be spending this much money if they didn't foresee a future where Figma significantly disrupts their market position.

>And that Lina Khan should stay off this? Give me a break, this is exactly what she should be targeting if she is serious about antitrust. Adobe + Figma bundle destroys this market for anything not named Canva for at least 5-6 years.

But the concept of "market competition" isn't just something outsider observers like us can judge and say -- "Yes, we conclude that this Figma acquisition is anti-competitive."

True genuine competition also depends the actual founders' internal motivations and future plans -- which we can't see. In other words, there isn't any competition if the co-founders don't want to compete anymore. Humans have complex motivations and the FTC can't make them compete if they don't really want to.

Figma wasn't making profits yet. Yes, they were growing the revenue but every founder has different thresholds of fighting on vs selling.

For example of genuine competition, consider that Mark Zuckerberg said "no" to Yahoo's offer of $1 billion. He also said "no" to Microsoft's buyout offer of $15 billion. MZ valued his company more than Yahoo and Microsoft did, so "no" made sense to him.

Did founders Dylan Field and Evan Wallace have see their Figma company staying independent the same way? I guess not because they said "yes" to Adobe's $20 billion.

>The idea that FTC should reward innovation by allowing monopolistic/oligopolistic buyouts for big prices

As for the "innovation" paradox, what the blog author was trying to explain is that Figma never would have gotten this big unless the original VC investors saw a future possible acquisition by Adobe/Autodesk/Microsoft/etc. More startups get acquired than actually go all the way to IPO. Without the option of "Adobe might buy them later so we can get our investment money back", Figma never even becomes Adobe competition because they never got the $332 million in funding in the first place.

If Figma was a bigger publicly held company with other multiple powerful shareholders besides Dylan and Evan, that would make more sense for FTC to block the transaction because other owners+managers within that hypothetical company may really want Figma to "compete".

If startup cofounders really don't want to compete anymore, FTC can't do much about that.

> True genuine competition also depends the actual founders' internal motivations and future plans -- which we can't see. In other words, there isn't any competition if the co-founders don't want to compete anymore. Humans have complex motivations and the FTC can't make them compete if they don't really want to.

Any citations for this extremely novel legal theory?

>Any citations for this extremely novel legal theory?

My point is that human emotions, passion, and endurance to withstand the stress of running a startup -- cannot be mandated by the FTC. That's not a legal theory that requires any cites.

If the founders don't want to mentally "stay in the game" to compete... that means there really isn't competition that we're hoping for. Founders are humans and not robots with a simple "compete" switch that the FTC can just flip on. If you disagree and think the FTC can force founders to do what they really don't want to do, explain how? Blocking this Adobe's transaction doesn't force cofounders to compete. They can still "sell" Figma in many ways besides a straight acquisition. Just more hoops to jump. Exclusive technology licensing to Adobe, or joint ventures, etc. Those would be a legal quasi "acquisition" by another name. The creative ways to structure "strategic business partnerships" are made possible because the founders would rather get some monetary reward instead of continuing to compete with Adobe.

Ok, outside observers like us can all pound the table saying "Figma should stay independent so there's competition for Adobe!" But... if the founders have mentally quit and don't want to compete, now what? See the problem?

You’re talking about a company with around a hundred million dollars in revenue. The founders can quit if they want, they can join the circus who fucking cares? The corporation is a distinct legal entity it can hire someone else.

None of this has anything to do with the fact that monopolies are destroying society and the FTC has a mandate to stop them.

>The founders can quit if they want, they can join the circus who fucking cares? The corporation is a distinct legal entity it can hire someone else.

But again, it's not a "distinct legal entity" that's competing that you can just assume as a given. You still need the people behind that entity with the state of mind to really want to compete.

Focus on the human actors .... If the other shareholders on the Board of Directors would rather sell their Figma ownership to Adobe to go along with founders Dylan & Evan selling -- instead of hiring new managers to replace them to continue trying to compete with Adobe, then there is no underlying competition there for the FTC to try and preserve.

Again, true competition requires motivation from the founders and the Board of Directors to actually want to compete.

The VCs in multiple rounds invested millions specifically in Dylan & Evan -- and not random hired managers -- to run Figma. They'd rather not hire replacements because it's too risky. Trying to find some hired guns that inevitably have less passion and energy than the original founders -- makes Figma less competitive, not more.

The thinking is similar for Adobe as the buyer. For them, the acquisition terms would have to include Dylan & Evan as "key people" joining Adobe as vice presidents for some years to keep improving Figma (or merging it with Adobe XD, etc) while their Adobe stock compensation vests.

When you contemplate business decisions you don’t get to consider illegal actions as your opportunity cost.

Like if you’re selling copper plumbing fixtures you can’t be like well if we were selling kilos of cocaine instead our prospects for higher margins would be different. It’s not even useful as a thought experiment.

Similarly, the value of Figma to a company that will use the purchase to create a monopoly position is higher than it would be to a general investor or public market. That’s because owning monopolies is more profitable.

But they’re also illegal. So I don’t give a fuck. And the fact that the founders are sad that it’s less profitable to do business without unlawful transactions isn’t relevant to anything.

> there is no underlying competition there for the FTC to try and preserve.

This is where you’ve made a mistake. It just means they thought there was more value in selling than competing. It doesn’t mean there’s zero value in competing, doesn’t mean they have no will or desire to compete.

What do you think would have happened if this deal fell through?

> monopolies are destroying society

I had a double take when I read that, in this context.

Are you saying that a monopoly on design software products is destroying society? It seems a little dramatic, no?

Yes. Software monopolies join all the other monopolies in being a huge driving force in increasing inequality in this country.

The thing which kills me is that Adobe won't do an on-line text editor which supports styles which will then seamlessly import into InDesign.

Surely they're not making that much from InCopy licenses that this wouldn't pay off in the long-term.

What is the antitrust risk? As both you and the author say, there’s viable alternatives in the market - and this deal will encourage more of them. It’s unclear how any consumers are harmed by this.

Antitrust risk is simple: Adobe takes up Figma, bundles it into existing Creative Cloud and essentially "dumps" the horrible parts of Creative Cloud onto the market as part of the bundle. Competing with bad parts of Creative Cloud is not possible because they are essentially subsidized by the strong parts.

Might be a controversial opinion, but this is exactly what Microsoft did with Teams at a certain point. Teams was just dumped on enterprise clients along with the usual Office 365 shebang, and Slack couldn't compete effectively because the bundle effect was too strong(and by compete effectively I mean that if Teams was offered as a standalone Slack would destroy it in every review).

None of the investment thesis is about making Figma better than it was or cheaper than it was. Every dollar they paid is because they believe they can squeeze more than a dollar out of consumer surplus and into their bottom line by preventing competition between Figma and their legacy products.

Consumers will be harmed by Figma becoming a more expensive, worse product and Adobe remaining a more expensive, worse product.

The author's final point is extremely good.

The result of this should spawn a herd of Figma-like companies, since a good exit and big payout is strongly assured by both a validated market and backstopped by the likelihood of an Adobe buyout.

>>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.

Possibly but customers quickly learn that these Adobe alternatives quickly disappear, so avoid. I know because I bought a bunch of Lightroom-like applications that are no longer supported.

There are two questions:

1. How repeatable is Figma and is this analogous to Dropbox? Now every major cloud vendor provides a Dropbox clone. Dropbox's market cap has been stagnant. Figma may have suffered the same fate if Adobe built their own clone or acquired an alternative product.

2.How will it be integrated with Adobe's traditional products? If this means less design focused users can create quick mockups to send to actual designers within Adobe's cloud, it's a win. Alternatively heavy users of Figma, without current exposure to Adobe, are now brought into the Creative Cloud ecosystem.

I also wonder what this did to Canva's valuation. Last year at the time, Canva raised $200MM at a $40B valuation.

> Figma may have suffered the same fate if Adobe built their own clone or acquired an alternative product.

Adobe already tried this with Adobe XD. The designers I've spoken to consider the software a joke, which is why Figma has continued to grow in popularity so quickly and why Adobe believed this price tag was required. After the announcement, there were multiple reports saying Adobe contacts said XD would be discontinued (or at least support dropped to just a maintenance level).

There's also the third-party Sketch, but that is Mac-only.

As for Canva... that serves a different market doesn't it? XD, Figma, and Sketch are all focused on rapid prototyping and app design. Canva is focused on social media and presentation design. I've admittedly never looked too far into Canva, though, so I could be wrong.

I think canva over time is going to go up market more effectively than Adobe can go down market (or maintain status quo).

Adobe’s products are monstrously complex, “single player”, and not inherently web native, and that permeates everything they do.

Maybe Figma will let them compete more effectively with Canva now.

Those designers most likely aren't doing native development, which is where Adobe XD used to be relatively good, in fact was introduced as one of the first Adobe products being on Windows store.

What baffles me in this (and other similar) acquisition(s) is,

Adobe is a great company and for sure has great developers on its sleeve. It would cost them much less than 20B to develop a Figma clone and just offer it as part of their suite, they wouldn't have an issue positioning it in the market. Heck, with about a million and a talented team you could build a pretty decent Figma alternative, so why did Adobe pay an extra 19,999(!) million?

Is it the community? The brand? Didn't want to risk it? To put them out of bussiness (just as Adobe could've made Figma, Figma as well could've started building their own Illustrator, Photoshop, etc...)? So, why?

This is M&A 101 and the innovator's dilemma 101.

Adode is a great company because they generate 15B+ in revenue per year, not because it has unicorn developers. Large organizations are notorious for how slow they move.

> Heck, with about a million and a talented team you could build a pretty decent Figma alternative, so why did Adobe pay an extra 19,999(!) million?

I always love these comments on HN. If it's really "that easy!" then I will happily give you a million to do so. The returns are clearly quite juicy.

facts ^

It’s nuts to think Adobe could clone Figma for $1M. That’s a headcount of 2-4, working on it for a single year. That’s off by several orders of magnitude.

I agree, but even if it cost Adobe $1B to build something like Figma, why spend the extra $19B?

Because what if it wasn’t as good, and nobody bought it? Then they are where they are today minus 1B spent. This seems to be what happened with their XD product.

We're actually watching this in real time at Facebook. They're doing exactly as the grandparent comment suggests:

https://www.pcgamer.com/mark-zuckerberg-spent-dollar10b-on-t...

> This seems to be what happened with their XD product

Hmm I don't know.

I mean, yeah XD absolutely failed, but when Adobe released it in 2016 Figma wasn't nearly as popular as it is today.

My guess is when Adobe decided to build XD (a couple of years before 2016) they were trying to compete with Sketch. So they probably missed the collaborative web-based aspect that made Figma popular.

And maybe XD was just an underbudgeted experiment to test the waters, not a serious product like Photoshop.

Edit:

I just realized Figma was released in 2016. I was probably thinking of InVision.

because they literally can't. ignoring the $1B budgeted cost, they are also facing massive execution risk. adobe is signaling their confidence in their ability to innovate/execute with the acquisition price - zero confidence.

even in the very unlikely event they were able to build a product with feature parity, with little operational blunder, on budget/on time, they still need to market it and get enough paying users to match the $400 million in revenue per year which Figma currently makes.

they're paying for customers, not just a product.

While I agree with the headcount and budget, I do think a behemoth company like Adobe would be well-positioned to take on such a task, simply because they already have things like:

- infrastructure

- talent

- tech

- capital

at hand, compared to a startup.

I haven't used Figma, but I'd be amazed if Adobe doesn't already have a ton of the same features and tools somewhere in the codebase. They're not exactly starting from scratch.

You would be surprised, honestly. A small dev studio from Eastern Europe would do miracles with that 1M. It wouldn't be a full-featured Figma, and of course there's quality issues and blah blah blah but ...

The point I wanted to convey is that Adobe could've developed that for way less money. So what else is there in the 20B?

>It would cost them much less than 20B to develop a Figma clone and just offer it as part of their suite, they wouldn't have an issue positioning it in the market.

But they are buying existing market share, existing tech and existing talent. It makes sense on multiple levels. It's always easier to buy something than to build it yourself from the ground up.

For example Zuck could've built Facebook's standalone mobile photo sharing app but Instagram was already much ahead with technology, market share(userbase) and mobile photo sharing brand.

Adobe actually beat Figma out of the gate. XD was introduced prior to Figma even existing. XD was a response to Sketch who at the time was eating their UX market share.

XD actually had some pretty great ideas, even though it was very limited at first. Unfortunately, new features in XD kept being less and less over time. It felt like after the first year, Adobe just didn't really care much about XD any more. That allowed Sketch to continue to be a threat and Figma to eventually take off.

So it's not like Adobe didn't try to enter this space. They did so and they did it prior to Figma. They just never really seemed to take it seriously for whatever reason and we are where we are now.

Yes. Having worked with designers many who use Adobe suite for everything aren't even aware that XD exists.

XD makes sense compared to Sketch -- build something in Illustrator and make it accessible to others -- and lacking compared to Figma -- Illustrator already in the cloud with multiplayer mode.

> with about a million and a talented team you could build a pretty decent Figma alternative

This seems like a scaled-up version of "I could build a working clone of X in a weekend". It's possible Adobe overpaid, but most likely not by 19.999 million dollars.

Adobe already had xD - a direct competitor to Figma. Adobe purchased Figma for many reasons; if you want a single reason why Adobe purchased Figma it's because Figma was successful: all the things that go into executing a vision at scale.

I think you underestimate the complexity of figma, greatly. Just one small example is their browser based plugin environment: https://www.figma.com/blog/how-we-built-the-figma-plugin-sys...

Multiply that innovation by a factor of 19,999 and you can see that it’d be hard to clone figma in a way that would pull users from figma to their own product. And while Adobe was copying, Figma would still be innovating.

Isn't this what Microsoft did with Teams? Copy Discord and compete. How worse off would we be if Microsoft had just bought Discord?

Not really, Microsoft wanted to buy Slack but the deal was nixed by the board in favor of improving Skype for business (previously called Lync) which already had a large user base. Later teams was rolled out as the replacement for S4B. Slack was of course ultimately sold to Salesforce.

Discord focuses on a totally different market vertical than Slack and Teams.

Adobe had a computing product.. Adobe xd, but it's dead i think.

It's also important to understand the uplift that an established company can have on sales.

* Adobe has a subscription model in place, with a large number of customers

* Adobe has bundles already, and this could allow them to expand some of those bundles or introduce new bundles

* Adobe may be able to (successfully) charge more for the same product, because they're a bigger company that charges more already for other stuff

I list these items because I got to witness an acquisition of a product company first hand (I was the founder and CEO) and the acquiring company was able to derive on the order of 10x revenue from the acquired product, vis-a-vis the trailing 12 months before acquisition.

$20 billion is a steep price, but if the product fills an important gap, if aggregate demand (and fit with the other products) is strong, and if Adobe can drive sales effectively, then it is possible that the acquisition could pay off quickly.

On the other hand, I've seen quite a few failed acquisitions that will never pay for themselves; nothing here is a given.

When you're selling something unique, its worth is whatever somebody will pay for it. Figma is worth $20B because:

1) Adobe can afford $20B, 2) there were other bidders to whom Figma was worth something substantial but not quite $20B.

It's the same logic that made WhatsApp worth $19B in 2014 to Facebook specifically. Others were interested, but one buyer was really determined to have it.

An angle I haven't seen this mentioned anywhere is... what if this was like Apple buying Next?

Adobe wouldn't be really buying the product for market reasons, but rather the expertise and leadership. Or who knows, maybe they want to put the Figma CEO at Adobe's helm in a couple of years.

It's not as big as Creative Cloud (which isn't really a cloud-based product), but

https://en.wikipedia.org/wiki/Adobe_Experience_Cloud

is a real SaaS product which strikes me as closer to Figma than CC in terms of how it goes to market. XC and other server-side products seem to generate a bit less than half the revenue of CC.

Adobe has made some effort to cloudify CC but I think those efforts have been pretty weak.

Great thread talking about how difficult it is to bolt on cloud to a non-cloud native product: https://twitter.com/amaldorai/status/1570516169848918017?s=2...

Admittedly, Microsoft was able to do this to a decent approximation for Office, but it’s still far from as capable as their desktop apps.

It's rather bold to lay out the FTC's case to block this acquisition, then argue that they shouldn't. The point of antitrust isn't to make sure companies have a pound of flesh exacted or acquirees get rich - it's so companies can't use their market cap to monopolize industries and jack up prices to consumers.

Would it be actually legal for the Figma owners to sell the company to Adobe, create the new company, say Figma2.0 and create similar(better) product from scratch, also advertise it as creators of original Figma come up with Figma2.0?

That depends entirely on the contract with Adobe which almost definitely would prevent that.

It's also hard to imagine the founders _want_ to do that. It is a slog to get a company from nothing to this.

If anything, they probably want to tackle some other problem.

>legal for the Figma owners to sell the company to Adobe, create the new company, say Figma2.0 and create similar(better) product from scratch,

Not possible for this type of acquisition. It was reported that this was a cash+stock deal. The typical acquisition contract means the Figma founders would likely have "golden handcuffs" to stay on as employees of Adobe where their Adobe stock would vest over several years. (Say 4 years.) The contract also means they have a standard "no compete" clause and can't quit and start similar company for several years.

1. Generally the buyer will sue for IP infringement or accessing confidential business data if ex-founders leave immediately after selling the company and build a competing product

2. The buyer will generally put terms in the M&A contract that forbids the main guys of the acquired company from building or working on competing products for a year or two

I went into this about to eyeroll the hell out of anything arguing Figma is worth $20B, but actually walked away thinking "huh, I kind of buy that argument".

Agree. 50x ARR is insane. But when it starts hitting pricing pressure on adobe it starts to make sense. It’s all in how the acquisition was framed.

Also, their revenue is rapidly growing, so that multiple will quickly drop.

Figma to me was what 'back to office managers' have dreaded, my entire last jobs return to office was predicated on the fact that 'you can't beat a good white boarding session'.

Figma is the best white boarding software I have ever used and it has made our team far more productive than I ever imagined. Once they start rolling out more end to end features (e.g. towards inDesign) Adobe was going to be losing out.

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