On December 18, a $20 billion deal by software giant Adobe to buy Figma, a San Francisco startup favorite, fell apart after more than a year of regulatory scrutiny.
In a blog post that day, Dylan Field, CEO and co-founder of Figma, painted an optimistic picture of what would come next. “The best and most innovative days of Figma are yet to come,” he said. wrote.
Behind the scenes, the startup, a design platform, is picking up the pieces. In recent weeks, Figma said it had reset its internal valuation to $10 billion, half of what Adobe planned to pay for it. Some employees, who were destined to reap huge windfalls, are deflated. Figma offered severance to workers who wanted to quit, 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 the artificial intelligence frenzy. It is trying to continue a breakneck pace of expansion to win customers, recruit new workers and appease investors, according to 15 current and former employees and investors, many of whom declined to be identified because of confidentiality agreements.
“It really feels like the rug is being pulled out from under you,” said Jason Pearson, who left Figma in 2021 and owns shares in the company.
Figma is a case study of what happens when a startup about to be bought out faces newly assertive regulators and the deal collapses.
In Washington, the Federal Trade Commission and the Justice Department have raised questions about many deals in recent years, suing to block some and tightening guidelines for merger reviews. British regulators have increasingly focused on technology deals by focusing 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 have been enormous. Last month, Amazon canceled a $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 CEO resigned and the company laid off 31 percent of its staff.
In December, Illumina, a gene sequencing machine company, agreed to sell Grail, a cancer test developer it bought in 2021 for $7.1 billion, after fighting US and European regulators. The FTC is also examining minority investments, such as Google, Amazon and Microsoft's backing of artificial intelligence startups Anthropic and OpenAI.
Figma and Adobe scrapped their deal after Britain's Competition and Markets Authority found the merger would eliminate competition in product design, image editing and illustration software. US and European regulators had also studied the acquisition.
The ripple effects are being deeply felt in Silicon Valley. For decades, investors have poured money into fast-growing startups, hoping to reap huge returns when the companies go public or are sold. They then reinvested some of that money into creating new companies.
“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 for it.”
Figma investors said they remained optimistic about the company's prospects. They pointed to its growing revenue as a leading provider of software that designers and engineers use to create digital products.
Figma also hasn't touched about $290 million of its venture funding, two people familiar with its finances said, and Adobe paid it a $1 billion breakup fee. Most importantly, investors said, the company aggressively developed new products and features, including artificial intelligence capabilities, while waiting for the sale to Adobe to close.
“We probably wasted a lot of Delta Sky miles flying back and forth across the ocean over the last 18 months, but we certainly haven't lost sight,” said Andrew Reed, a Sequoia Capital investor who is involved in Figma. board.
When asked for comment, Figma pointed to Mr. Field's comment. Blog post about the deal. Adobe declined to comment. Forbes previously reported Internal valuation and compensation offers from Figma.
'Who the hell is Adobe?'
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 for people to design websites and online applications, rather than using expensive and clunky software. The startup's products, available for free or via subscription, allow designers to create, edit and share designs.
Adobe, which makes design software like Photoshop and Illustrator, soon caught wind of Figma. At one point, Adobe tried to enter Figma's territory with a product called XD, but it wasn't as popular.
Figma employees, called Figmates, saw themselves as promising fighters. In a theme song they sang at group gatherings, a rap verse included the lyrics: “Ten or fifteen years from now, people are going to say, '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 has said was on track to make $400 million in “annual recurring revenue,” a tech term that extrapolates monthly revenue over a year.
Its investors, which also included Kleiner Perkins and Index Ventures, boasted that the startup was a “once-in-a-generation” venture. Figma, privately 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 requested another buyer and aimed for a higher price, according to a document, 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 unveiled their agreement on September 15, 2022, Field declared that the combination would be “an opportunity to reimagine what creative tools look like” and a way to achieve Figma's goals even faster.
Many Figmates could hardly believe their good luck. Joining a new company is often a leap of faith. Employees may be left with worthless stock, having wasted years of their lives, but sometimes they get lucky and achieve life-changing riches.
“Everyone who works for a technology company expects this to happen,” Pearson said.
However, the agreement was far from complete. Over the next year, Figma and Adobe worked to comply with regulatory investigations into their merger in Europe and the United States.
During that time, Figma tried to grow faster, in part to prove it was worth $20 billion, two former employees said. The company hired 500 people, launched a series of features and hosted a conference for 8,500 people in San Francisco in six months.
A survey of employees after last June's conference showed an increase in feelings of burnout and feeling overwhelmed by deadlines, two people familiar with the situation said. Field later said that running the company while trying to close the deal with regulators was like working two or three jobs at once.
Some recent hires were also stalled. Stock was a big part of their compensation, but new employees who left before the deal closed would lose their stock, including any they had acquired or earned, after working at the company for a year, according to internal communications seen. by The New York Times.
That policy, designed to minimize taxes, applied to workers who had joined in May 2022 or later. Amodeo said withholding stock awards for tax reasons was standard for companies with a pending deal.
In June, Britain's Competition and Markets Authority intervened. The regulator published a report arguing that Adobe and Figma could be rivals, which meant a deal would reduce competition.
To fix it, the regulator proposed in November that Adobe divest itself of a crown jewel of its business, such as Photoshop or Illustrator, or that Figma spin off its core design offering. Adobe rejected those options.
“Adobe and Figma do not agree with the recent regulatory findings, but we believe it is in our respective best interests to move forward independently,” said Adobe's Narayen. saying when the companies abandoned the agreement in December.
Figma employees digested the news that they would not see any windfall. Some, who had put their lives on hold waiting for the deal to close, were relieved to have clarity.
“Anyone who has been through an acquisition will know that the limbo period can be the most difficult,” said Figma employee Hugo Raymond. wrote in X.
Pearson said he had 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 founded an independent music record label that he planned to support with profits from his stock.
“You begin to psychologically and emotionally plan for a very different future,” he said.
Forward
Figma has moved on. The company recently made a developer tool, called DevMode, available to everyone and has promoted ai improvements 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 hope Figma will allow them to sell a portion of their shares this year in what is known as a takeover offer, although no plans have been made. The company's best option to get paid now is to go public, which could take years.
Figma investors have decided to be patient and learn a lesson for their other startups. The bar is now higher to engage in deal talks, Sequoia's Reed said, adding that a breakup fee is crucial.
The Silicon Valley circle of life, which recycles acquisition money into new companies, remains stagnant. Adam Nash, an entrepreneur and Figma investor who has used his initial stock gains to back more than 130 companies, said he expected such deals to return within a few years.
“But they won't happen now,” he said.
