Adobe and Figma's decision on Monday to terminate the $20 billion merger dealt a blow to Figma's investors and employees whose dreams were about to be shattered. However, Figma's business is still growing rapidly compared to most established startups, with an IPO on track for 2025 or beyond. And the billion-dollar termination fee from Adobe will further strengthen Figma's already strong balance sheet.
According to people familiar with the matter, the design software company expects annual recurring revenue to exceed $600 million by the end of this year, an increase of more than 40% from last year. The San Francisco-based company has allegedly been generating cash for several years. In a year when many companies experienced a decline in growth rates as enterprise customers cut back on software spending, this financial position could make it one of the best-performing late-stage private tech companies.
Key takeaways: Figma's annual recurring revenue is expected to exceed $600 million The company's valuation could be less than half of the $20 billion it agreed to itself Figma may raise investors to buy secondary shares in employees
However, compared to September 2022, when it agreed to move to Adobe**, Figma is not as valuable as it used to be. If investors value Figma's annual recurring revenue at the same multiple as Canva, a larger, more consumer-focused privately held design software company, Figma's valuation could be as low as about $9 billion, lower than its valuation in its last private placement round. This year, in a large secondary market transaction, investors recently valued Canva, which has nearly $2 billion in annual repeat revenue and is valued at about $25 billion. However, Figma is more focused on the corporate market, which means that investors may give it a higher valuation than Canva, which is more focused on the consumer market.
A spokesman for Figma declined to comment.
Figma is considering raising investors to buy some of the shares from employees in the coming months, though it could be less than the $20 billion Adobe originally planned to pay, according to a person familiar with the matter.
Joel Flory, founder of VSCO, an editorial startup, said it was crucial for Figma's employees to "regroup" after losing the opportunity to pay heavily. "You jumped off a fast-spinning merry-go-round, and now you have to jump on it again," he said. His company uses Figma's software as an in-house design tool.
An IPO is likely to be at least a year away. According to people familiar with the matter, the company has not drafted a prospectus for its initial public offering and has not taken key steps, such as hiring bankers to trade. Figma's sales advisor, Qatalyst, does not handle IPOs.
Employees, executives and investors have been seeing signs for months that the merger deal will fail, people close to the company said. The acquisition became the focus of attention for the UK's Competition and Markets Authority, which said it was considering blocking the merger or forcing Figma to force its biggest product, Figma Design. The European Commission has also questioned the deal. The U.S. Department of Justice is also considering whether to block the deal, according to **.
Under the terms of the termination, Adobe paid Figma a termination fee: $1 billion in cash. That's generous, according to investment bank Houlihan Lokey — it's 5% of the deal size and more than double the termination fee in large deals. This fee is three times the amount that Figma finances from venture capitalists.
According to a person familiar with the matter, such a charge would add a considerable amount of money to Figma's balance sheet, which already has hundreds of millions of dollars on its balance sheet.
In 2016, Figma launched a web-based design product with instant collaboration and editing, which won the favor of professional software designers, who often need to put it on their computers compared to older software. Last year, Adobe halted the sale of its rival product, Adobe XD, as a standalone product.
Designers often criticize Adobe's software for being clunky and difficult to unsubscribe, and many have expressed concern about what impact Adobe's acquisition of Figma will have on the product. As a result, some critics rejoiced at the failure of the deal. Ian Styles, founder of brand agency Styles+Partners, said he prefers Figma as an independent company. "Adobe's monopoly on the market has stifled the development of creative software for a long time," he said.
However, FIGMA's venture capitalists now have to wait longer and may receive lower returns. Figma's investors Greylock Partners, Kleiner Perkins, Andreessen Horowitz and Durable Capital Partners, who would have made huge returns from the Adobe acquisition, could now suffer those returns.
The failed deal has wide-ranging implications for startups and venture capital firms. Venture capital firms struggle to return capital to LPs due to regulatory threats that have stalled mergers and acquisitions and the stagnant IPO market.
Semil Shah, founding partner of early-stage venture capital firm Haystack, said the deal would have a "chilling effect" on potential companies seeking to acquire startups. This, in turn, will limit venture capital ventures.
"Capital will be trapped for longer," he said, adding that investors can also take advantage of the secondary market** their shares. "Even if you invest in the best software business like Figma, you can't exit from it. This will have a cold effect on a lot of things. ”
Cory Weinberg is the deputy director of financial reporting at The Information. He covers late-stage private technology companies, IPOs, and capital markets, and is based in New York. He recently earned his MBA from Columbia Business School. His Twitter account is:@coryweinberg。You can contact him via Signal on +1 (561) 818 3915.
Maria Heeter is a New York-based correspondent for The Information, focusing on deals in the tech sector. Got a clue? She can be reached via SMS (Signal or WhatsApp) or email, the number is 6033197139 (mobile, Signal or WhatsApp) and the email is heeter@theinformationcom。