Trace: The Reply Doesn’t Contain a Spreadsheet
I’m not an investor in Figma. I don’t know Figma CEO Dylan Area. And I’m not a designer. So this implies I’m both completely positioned to offer you my goal feedback on Adobe’s $20 billion buy of the startup, or completely unqualified to ask on your time on this matter. With that out of the way in which, listed below are three statements about this acquisition.
- Is Figma actually price $20 billion? I imply that’s 50x ARR!
Any spreadsheet that Adobe’s corp finance operate used to justify the a number of, or the bankers offered to recommend what valuation it could take to get this deal carried out, is mainly CYA math. There’s one single methodology for Adobe’s calculation:
Figma had crossed the ‘this issues to Adobe’s future’ rubicon. They hit $400m ARR and have been persevering with to double. Figma income, impartial of margin, was more and more displacing income which may have gone to Adobe, or extra particularly, creating pricing stress on Adobe. It was a product designed natively to be collaborative, to be simpler to make use of than Adobe’s skilled instruments, and with out the luggage of options and nomenclature leftover from years of software program releases, platform shifts, and enterprise mannequin modifications.
When the autonomous automotive firm Cruise received shortly snapped up by GM in 2016 jaws dropped on the $1b+ reported worth (we have been small buyers in Cruise). The reply there was the identical: if autonomy is the potential way forward for your trade and also you’re not but robust in that space, what’s % of your market cap is it price to convey these playing cards into your hand. In that case it was roughly ~2.5% if I’m remembering appropriately. In Adobe’s case it was a bigger proportion as a result of Figma is manner additional alongside as a enterprise and the understanding the way forward for design at the very least seems like Figma is excessive. There you go.
As soon as the buying firm CEO and Board is framing the transaction this manner the startup has gained. It’s gonna be an enormous payout. And in enterprise, one factor is true about large exits….
2. This transaction will not be about Adobe’s failures, however really about their success.
It’s straightforward to beat up on Adobe. Dumb massive firm couldn’t construct Figma themselves so finally ends up having to pay an eye fixed popping quantity. However I’m going to recommend that you simply really ought to give Adobe credit score on this case for being within the place to make this provide.
It wasn’t too way back that Adobe bought shrinkwrapped bundle software program for a one time cost. Then the massive innovation was they might lower the bodily COGS by making this improve downloadable. However they lacked the continuing reoccurring income stream of a SaaS firm. And that income mannequin is a lot extra engaging, and given a a lot greater a number of by buyers.
In order that they bit exhausting and moved to a largely subscription Inventive Cloud mannequin. And it, effectively, labored.
During the last 5 years Adobe dramatically outperformed the NASDAQ index. That hole shrunk meaningfully the previous few days as buyers questioned the Figma transaction, however that Wall Road response is short-term not what issues. What it’s best to notice is that Adobe was solely in a position to make this acquisition as a result of they escaped the outdated enterprise mannequin and have been rewarded with a market cap that hit $200b+ during the last 12–24 months (it’s $140b as I write this post-transaction announcement). If Adobe had failed this transition they’d doubtless be effectively beneath $100b marketcap and just about unable to swallow Figma (not to mention a a lot much less engaging place for the Figma staff to exit to).
Main a giant public firm is absolutely exhausting which is why I’m inclined to say, good job Adobe! Whereas additionally celebrating Figma going proper after them to begin.
3. Palms off this one Lina Khan.
I’m not making a authorized argument right here concerning the FTC and the way you outline antitrust, monopoly, and many others almost about M&A. I’m simply saying I believe it’s silly and short-sighted to dam a transaction like this. Adobe is giving their pound of flesh. Figma is being extremely well-rewarded for innovation. And should you take away the potential for acquisitions by the market chief from the startup playbook you’ll really get fewer startups going after the market leaders. And that has worse ramifications for the financial system and for customers than incremental consolidation like this. Particularly since there are many different instruments obtainable to perform a number of of the identical features Figma does.