What's wrong with selling goods and services for more than they cost?
As you point out, if Figma can build a growing, profitable business, there is no reason they can't IPO at some point. But still, this shows how even the purpose of an IPO these days is completely opposite from the original intention. I.e. the original intention was to get access to public market funds to grow a business. Now it's usually just a method of "exit" to let retail investors take the lion's share of the risk - one only need to look at 95%+ of the past few years' SPAC deals to see how much of a "pump and dump" the market has become.
Founders and employees would be totally OK with staying private, if the board would ever permit issuing a dividend. That's the "normal" way to have an "exit" (i.e. return profits to shareholders) without a public offering. The purpose of delaying issuing a dividend is to reinvest profits / additional fundraising for growth, but that growth should still result in a dividend in the future, just a larger one if the investment in growth succeeds.
Instead, founders and employees are encouraged to look forward to an IPO precisely because somehow we've come to believe that it's sinful for a company to issue a dividend, as if doing so means giving up on the idea that further growth is possible, when really it's only an acknowledgement of the fact that (a) there's a healthy rate of growth, (b) that healthy rate of growth costs $X, (c) if the company has $Y cash >> $X growth cost, then the healthy thing to do is to issue a dividend (so that shareholders can invest the excess into companies that are currently better recipients), rather than attempting to force growth faster than the company can support.
If the general understanding was that the founders (well, board) weren't chasing an acquisition or IPO, this might be a good deal for employees. Of course, if the company is VC-backed (and the founders don't have majority control anymore), the VCs probably wouldn't go for this sort of thing.
I do actually wonder if the current trend of consolidation is driven in part by the standard VC-backed startup formula. Getting acquired is usually a lot easier than going public. Instead of startups fueling long-term competition, they just end up getting gobbled up by larger players most of the time, fueling consolidation and monopolistic behavior.
And as someone who went through an acquisition exit in a just-shy-of-unicorn startup by a very big dog, yes, everyone's/VC's aversion to IPOs is definitely making it easier for said big dog companies to acquire people who in the past would have been shoe-ins for excellent IPOs.
Most businesses in technology are nothing like the VC-funded, exit-oriented, and/or hyper-growth culture would have you think. Yet it seems like the glitz of a great IPO or being able to shell out for a $200 million annual corporate event blinds many to the reality of most businesses.
I have wondered how much of this naïveté contributes to the failure rate of technology startups.
I’m on my second business and I intend for it to be my last, though time will tell. The key thing I’ve learned is that hyper-growth, IPOs, and VCs aren’t really good for anyone other than the equity holders. Once you start selling ownership in your business, your customers are no longer your first North Star.
IPOs and huge sales far above the liquidation preference is the only way any of the employees would see any of that money.
The majority of those affected negatively by this are not the founders, but the employees. Many of them may have turned down FAANG positions that come with predictable liquid RSUs. Some may have kids (in fact, I know someone at Figma who had a kid in the past year).
Liquidity's not necessarily about opportunistically passing on risk...sometimes it's just about making a competitive living relative to being at a public company.
And having been in that position several times, I definitely don't blame them! Employees also have the much tougher constraints that they can't diversify their employment like VCs can diversify their investments.
But still, it's the same dynamic that people want to get rich, and the downstream consequences be damned.
There is a valid argument that that's a perverse incentive, and that companies should just pay employees better to begin with, or have various longevity/performance-associated bonuses, but if the company isn't profitable, share value is perhaps the best way to represent that.
And on top of that, employee share schemes tend to get very favourable tax treatment. So overall "skin in the game" is no bad thing, the problem is that, in many/most cases, an exit is the only way you're going to get your skin back out of the game.
But it's a weird take, because employees are already the ones "holding the bag". Office space, cloud compute, etc. are all sold as COGS. VCs usually have some ability to sell their shares on the private market since they can negotiate to get their capital. Employees are often the only ones which are taking an IOU for their time and effort compared to what they could get elsewhere in the market. Employees are often the lowest class of shares which get paid out last and often reliant on the board to be able to sell on the private market. Yes, the employees decided to take this offer, on good faith, that their management would look after them. They are adults who made a, theoretically, informed decision. But structurally, they are set up to be the ones "holding the bag" if things were to go wrong with an exit.
So of course they want an exit. They literally have no other choice to get a return on their time/effort than for that to happen. (or some odd third thing like private dividends, but again, they have practically no control over that happening)
Sure they have (had) another choice: they could have taken employment at a more stable (possibly public) company, where compensation would have been more predictable.
But they chose to work at a smaller, private company, and accepted private-company equity as part of their compensation, which 9 times out of 10 ends up being worth zero dollars. This idea that they're somehow entitled to a payout is ridiculous.
The situation that the VCs and founders are in is often enviable, but isn't really relevant here. Regular employees need to be financially responsible about accepting jobs with private-company equity comp, and not expect miracles. That's the bottom line.
(I agree that "holding the bag" is a weird way to frame this, though.)
Respectfully disagree. It's relevant to the extent the parent comment was talking about employees wanting to have someone else "hold the bag".
> Regular employees need to be financially responsible about accepting jobs with private-company equity comp, and not expect miracles.
Agree that it's their responsibility and no one should be starting a kickstarter for them or anything. But that doesn't mean you can't sympathize with them. They are often fairly young people who aren't experts on contract law. It's not unreasonable to say that at least some of them have been exploited with excessive promises. The industry would be a better place if rather than say "they should have known better", we instead said "employers shouldn't exploit people". A precedent of bad behavior shouldn't excuse it.
Look, it sucks, I get that. I was an employee at a successful startup that did end up going public and made me a bunch of money. But I also worked at three other startups that didn't go anywhere and my options/stock ended up being worthless. I also worked at a "boring" public company with equity comp that amounted to a pretty small (but helpful!) quarterly bonus.
I accepted each of those jobs knowing what I was getting into, and knowing that I probably wouldn't see any kind of big payday (the one where I did was life-changing, but if that hadn't happened, I'd still be fine, financially). That's the nature of the beast. It's disappointing when it doesn't work out, but don't play the "some of them have kids" card: people need to plan their finances based on normal, expected outcomes, not on the moonshot.
And regardless, Figma still seems like a great company, with great products. Employees will still likely do really well, whether through a different acquisition or by going public. They'll just have to wait longer.
Well yes there are typically many more employees than there are founders. Despite this, founders probably missed out on orders of magnitude more money than all of the employees combined.
[Off topic] That is some throwaway account with 60k+ karma and almost 7 years in age.
A "proper" startup does indeed include an exit as that's the point where they give a return on investment to their VC's. That is the startup game, use the VC money to accelerate growth, then exit/go public.
Not saying I like it, but once you take the VC money that is the game you play.
Regarding startups, I just did google "define: startup" and in the dictionary definition there has no VC and no exit.
Once you take VC money, like Figma did, your goal is a lucrative exit.
It's high risk, high reward. It's a different way to build a company, and it's not really possible to change that once you take that route.
Doesn't mean you have to do this. I am all for building steady profitable private companies that aim for the long run, I think it's a great way to build great companies, but then you should stay far away from VC money, take a lot less risk, have different compensation strategies etc etc.
for everyone
> , high reward.
for the owners, solely.
For everyone else, notably generally those that actually produced the thing of value, the reward is that if you're VERY VERY LUCKY, you get to keep your job.
Sometimes more than half of your expected compensation at a startup is in equity upside, either from an IPO or acquisition.
If that is to no longer be the expectation, then hiring at startups will be _much_ more challenging because startups cannot generally afford the salaries or benefits that larger companies can offer.
It's about the expectation of everyone involved.
Eventually every company needs to turn a profit, so for the company it might not make that big of a difference or even be better (if they can turn a profit which I assume Figma can), but for the investors and individuals involved it's a very different situation as it means their capital is pretty much stuck. And I bet a $20B exit would be life changing money for a lot of people involved.
I do think its the right outcome and better for customers, the government is doing what it needs to do.
But I still empathize with the people involved.
I wonder if as long as there is VC money out there, the viability of this strategy is limited because the moment incumbents (even ones with overwhelming market share) try to jack up prices, they immediately create an opportunity for a startup to undercut them.
A similar strategy which seems to be quite common these days is to cross-subsidise, which is when a firm sells one product at an artificially low price by using profits it makes from selling another product. If we think about cross-subsidisation, then lots of multi-product sass offerings might fall under our scope. That said, cross-subsidisation has economic benefits, so it's not clear-cut.
As I said, to properly adjust to digital markets I think antitrust will have to identify new patterns of harm and invent new metrics to measure them. Predatory pricing (and similar offences) will always be useful, but they might just not fit well onto these kinds of markets.
As a general rule, firms want to escape competition in order to make higher profits. There's nothing wrong with that! Indeed, the mechanism by which economic competition generates many of its benefits is that firms innovate in order to escape competition, and for those innovations to be useful for us all. So, where does competition/antitrust law come in? In part, it's about ensuring that firms escape competition in the way that we want. Innovation and competition on the merits is good, underhanded tactics to harm competitors is bad. All competitions need these kind of rules, regardless of whether they're economic, political, sporting, etc. When you have a large population of thousands of firms, you can be sure that some of them will be trying to compete unfairly, hence the assumption that there is some harm that we're yet to find.
> there isn't any consumer harm to be found, only harm to smaller competitors' businesses
We can distinguish between 'static' and 'dynamic' harms. Static harms are those which happen in the short run, such as a cartel agreeing to increase prices or not innovate. These harms are quite concrete and easy to define. Dynamic harms are those which affect the way a market might function in the future. For instance, a harm to innovation may result in people not having access to new products. It's hard to say for sure whether these harms will actually manifest, so we're usually talking about tendencies instead of certainties. It's perfectly reasonable to consider tendencies under the law though (e.g. we might prohibit drink-driving for the same reason). Dynamic harms usually have harm to consumers as a second order effect (e.g. reduced innovation or choice).
The analogy to drunk driving makes sense, but in the context of business is it so important to get ahead of the harms that we have to legislate against pre-harms? Innovation and merit and underhanded tactics are in the eye of the beholder, and it seems like we apply a LOT of preexisting notions of who is a good company and who sucks when we evaluate behaviors. That doesn't feel like a sustainable way to write and enforce laws.
Firstly, I didn't spot what paper you mean other than 'related to Amazon', but it's plain to see what can happen to an Amazon. Once it's finished destroying competitor businesses the only way it can get more profit is by continuing to get paid, but ceasing to deliver services. And this is already happening in various ways. I'm sure I'm not the only person, even on Hacker News, to have grudgingly written off an Amazon purchase that simply never was delivered, a cheap and trivial thing that didn't pan out, a 'problem with this order' that the system simply ate.
At the point when you're taking consumer money and not having to do anything, that's harm. You can get away with it because your system is invincible. (I also feel like this about the insurance industry: I think it's set up to not pay, and has better legal representation than the consumer does)
To the extent that a business's primary purpose is to make money, these are successes. To the extent that the primary purpose is to hurt competitors, these are still successes, to the extent they're possible and not just undermining your position: you have to be monopolistic or at least in control to be able to pull that stuff off, but then you're wealthier, giving you more power to hurt competitors.
None of this serves a market economy for providing goods and services. It may exist, but it hurts capitalism as a functioning concept.
Lina Khan (FTC chair) wrote an influential paper called The Amazon Paradox laying out a new antitrust doctrine which argues that rather than consumer harm, the standard for antitrust should be harm to competitors.
> it's plain to see what can happen to an Amazon... you have to be monopolistic or at least in control to be able to pull that stuff off, but then you're wealthier, giving you more power to hurt competitors.
"Can" happen is not the same as "has" or "will" happen. If they are causing consumer harm, they should be punished. But as far as I can tell, there hasn't really been strong evidence of that yet (your example of a bad delivery experience is not unique to Amazon), and I don't think we should punish pre-crimes. Ultimately, it feels like you and many others are starting from a position of "Amazon et al should not exist" and working backwards to a justification.
Sounds a lot like a pyramid scheme
What's the endgame to ever-increasing share value exactly? It's easy to say that a company should never stop growing, but there's no way that's a realistic ideal.
I could even prune that down some more. What's wrong with selling goods and services?
Not as a means to the accumulation of enough wealth to cash out and cease selling goods and services, which is what the startup world is trained to do. There's this hyper-focus on financialization, in that nothing means anything beyond the eventual payout, and all things are designed to either succeed or fail at going public and delivering that jackpot.
What about… doing the thing? Making a good, doing a service? What if that thing is in itself a thing to do, a purpose to have? In that case if you are either breaking even and retaining control, or amortizing the cost against something else, then you're pursuing some kind of idea that is not itself 'money'.
Why not that? Why not, directly, a thing that isn't money? I'm given to understand the idea of money is to accumulate the power and resources to do whatever thing your dream envisions. Well, how about cut out the middlemoney and do the thing?
On a serious note, it's depressing how much a comment like this stands out from the crowd.
Much easier to give things away for free and sell the company.
Unless you are VC-funded. Because VCs expect+need an exit for their LPs.
edit: Got it. I just woke up when I asked.
Operating as a sustainable business that sells a good product for a profit is apparently not even on people's radar.