Shares of Adobe sold off following last week’s news that the United States government is “getting ready to file suit to block the $20 billion Adobe-Figma deal announced last year on the grounds it is anti-competitive,” though not as sharply as when the company announced the deal back in 2022.
Investors, it appears, are willing to ding Adobe for both doing the deal and not doing the deal.
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That the Department of Justice could stick a fork in the transaction is not a shock. Other authorities have also been taking a hard look at the deal. As TechCrunch reported earlier in February:
Adobe’s proposed plan to snap up digital design rival Figma for $20 billion has attracted the attentions of the European Commission (EC), which announced today that the proposed merger potentially “threatens to significantly affect competition in the market for interactive product design and whiteboarding software.”
Even more, last December, news surfaced that the U.K. was also probing the deal. Lots of folks in the business of not letting corporations obviate competitive pressures by simply buying smaller rivals are at least skeptical of the purchase. If the United States does file a suit, we could see the transaction fall apart.
From a startup perspective, this isn’t the worst news. From a venture capital perspective, it’s awful. But from a competitive perspective, the question is not whether the deal is anti-competitive — it’s whether we should care.
Let’s chat through how we might consider the deal potentially becoming regulatory roadkill from startup, venture and competitive terms.
Three perspectives
No startup wants to lose a $20 billion exit price when the figure is double their prior valuation and the underlying economy is lackluster. Figma, therefore, we presume, wants to get the deal done. For startups more generally, however, news that the Adobe takeover of Figma could fail to launch isn’t the worst news. Why? Because we’ve seen this story before — recently, even — and the startup in that example is doing just fine.
Enter Plaid. Recall that Visa wanted to buy Plaid for a mint. Then, the deal fell apart after running into regulatory issues. Plaid then went on to raise capital at a valuation that was a multiple of the price at which it had planned to sell itself. Sure, the company has since run into some choppier waters, but the lesson of Plaid — one that applies to Figma, I think — is that the startups that land big, splashy potential exit prices to competing incumbents are the very startups that will do fine even without the deal.
For venture kiddos, the potential demise of the Adobe-Figma marriage is trash news. Why? Because some 32 investors put capital into the startup, per Crunchbase data. And every single one of those investors is, we presume, looking forward to returning not only cash to their limited partners but also evidence that some of their paper marks are legit. A big deal recycles cash in the LP-venture-startup loop and makes investors look good. Not having the deal go through does not.
But what about the rest of us? What should we think about the potential issues here? Let’s be clear about a few things:
- Adobe is not buying Figma to increase competition in its market; instead, it’s buying something that could compete with it to prevent just that.
- If the deal goes through, Adobe will be stronger than before — with a wider product mix and access to what is presumed to be a younger customer cohort, not to mention reaccelerated revenue growth — which doesn’t sound great for innovation, right? After all, Figma became Figma because it was independent not because it was merely a fief of a legacy tech giant.
- Stronger companies with less competition are not a recipe for innovation or customer surplus. They are, instead, how you get entrenched giants and rising corporate profits.
I’m struggling to find a reason to cheer for the Adobe-Figma deal, apart from the fact that it is an intellectually interesting transaction that I enjoy writing about and that I once sat next to Figma’s CEO at a dinner. He seems nice, and if someone has to become a multibillionaire, he’s a better candidate than most.
And if the Adobe-Figma deal isn’t anti-competitive, then what is? What’s next, Adobe buying Canva as well? Uber and Lyft tying up? Facebook buying the U.S. arm of ByteDance?
If Adobe wants to deal with the competitive threat that Figma represents to the company — something that we can infer from the $10 billion premium that Adobe is willing to shell out for the smaller concern — it should do so by building something that can compete.
That would be better for consumers and customers alike. And frankly, that’s what we should be rooting for.