When Adobe announced it was putting up $20 billion to buy Figma in September 2022, it didn’t take long before people began assuming it was a blatant attempt to take a competitor off the market.
It was certainly curious, especially considering the offer was double what the company’s most recent valuation had been and worth around 50x Figma’s revenue. It’s hard to argue that the deal wasn’t a display of brute force on Adobe’s part, the kind of corporate rollup that regulators are trying to put a stop to after years of letting the tech giants run rampant, buying up startups that could eventually erode their market share.
The proposed Adobe-Figma deal has certainly gotten the attention of regulators — and not in a welcoming way. Already, the Justice Department, the Competition and Markets Authority (CMA) — Britain’s competition watchdog — and the EU are taking long, hard looks at the deal, and it wouldn’t be too much of a stretch to think that any of them could nix the deal for being anticompetitive.
“We are still in preliminary phases of the regulatory process and are having constructive discussions with the CMA, EC and DOJ about the businesses, markets and positive economic impacts this deal will bring to support [customers’ positive] reviews [of the product],” an Adobe spokesperson told TechCrunch+.
It seems pretty obvious even to a casual observer that Adobe is trying to take a potential rival off the board, a move that could stifle both competition and innovation, not a great mix for design software consumers.
To be sure, the deal would give Adobe an entirely new look, one it has tried to build on its own with a design tool rival, Adobe XD. But XD never gained much traction, which explains why the company was willing to fork over $20 billion to get the cream of the crop.
In an interview at TechCrunch Disrupt last fall, Figma co-founder Dylan Field argued that the two companies would truly be better together. But of course he has 20 billion reasons to think that.
When asked to explain why he decided to join forces with the company that his marketing team had been painting as its biggest rival, he saw two companies marrying creativity and design, and he couldn’t see having the resources to move in that direction on his own, at least not for a long time. “If we want to go and make it so that we’re able to go into all these more productivity areas, that’s gonna take a lot of time. To be able to go and do that in the context of Adobe, I think gives us a huge leg up, and I’m really excited about that,” Field said.
But with regulators looking closely, it’s not a stretch to wonder if that’s ever going to happen. But even if it does, would the deal be a net-positive for Figma and its backers? Let’s talk about it.
The Plaid example
Big, expensive deals to acquire hot tech companies that later run into regulatory troubles are not new. A few years back, Visa wanted to buy Plaid, a startup that connects consumer bank accounts to fintech services. Given Plaid’s rising stature as a critical piece of financial technology infrastructure, it’s not a shock that Visa wanted to snap it up. Heck, it was even willing to double its prior valuation to get the deal done — does that sound familiar?
Then things got difficult. In fact, after a long while, the deal fell apart under the white-hot spotlight of regulatory scrutiny, and Plaid was once again just another venture-backed fintech startup looking to grow. It quickly went out and raised a bunch more money at a higher valuation than Visa had offered it.
At the time, the situation felt almost like a rebuke of the Visa deal; Plaid was clearly viewed by the market as worth more than Visa had been willing to pay, so the fact that its sale went kaput seemed like a win for the company. Then the tech market slowed massively, and fintech valuations in particular took a bath.
Plaid had to lay off staff in late 2022, hardly the only richly valued tech unicorn that had to trim costs last year. Citing overhiring in anticipation of continued, rapid-fire revenue growth — again, does that sound familiar? — Plaid’s CEO told his team that they had not grown their top line as much as their costs, making the cuts necessary.
Still, Plaid is hardly adrift. Forbes reported that the company generated annualized revenue of around $170 million at the end of 2020. Presuming that 2021 was a good year for the company and that it has continued to grow since, Plaid is sitting on strong nine-figure revenues today and can go public when it feels ready. It’s hardly the worst result in the world, and the market is winning from the failed transaction in our view.
Startups that manage to challenge incumbents have a greater chance to shake up — may we say disrupt? — their markets, unlocking consumer surplus and ensuring that rent-seeking is kept to a minimum in the business world.
This brings us back to Figma. It is very clear that the dollar figure that Adobe is willing to pay for Figma is rich, and would have been pricey even back when tech valuations were richer. Why would Adobe be willing to pay so much? From a wealth of possibilities, two are stuck in our heads: Figma would not sell for less given its incredibly impressive revenue scale and growth, and Adobe knows that Figma is undercutting its future growth and is thus willing to pay in blood to avoid losing out to a quickly growing rival.
If Adobe is willing to pay such a massive premium for Figma, our early view that the deal is anticompetitive, at least to a degree, seems pretty fair. And if Figma knows that it is going to be worth a massive pile of dollars down the road and therefore won’t sell for less than a king’s ransom, well, that makes our point about competition all the more valid.
But would Figma be better off inside of Adobe? It’s hard to find a good reason to believe that. It will move slower, have less control over its own branding and budgets, and will be forced to consider a panoply of Adobe products and messaging before doing what it thinks is best for its own suite of products. The deal will unquestionably benefit Adobe, but that’s not much of an argument for either consumers or startups themselves.
Certainly, the economy could worsen, valuations could fall more, and if the Figma deal falls apart, the company could regret that it couldn’t get a rich payout for its work sooner rather than later. But if Figma is worth $20 billion to Adobe today, we struggle to not see how it won’t be worth $40 billion to itself in time. And more valuable for its users along the way.
Startups are not machines to test new models only to sell to their archrivals when the latter decides to hold their nose and admit defeat. They are supposed to be giant killers. Here’s hoping that Plaid shows up Visa in time and that Figma manages to stay solo. With regulators circling, we may get to see the natural experiment play out, no matter how much the two companies want to tie the knot today.