Adobe has called off its deal to acquire Figma for $20 billion due to regulatory concerns in the EU and the United Kingdom, adding yet another data point to worries that the stricter stances taken by the world’s governments regarding competition rules may negatively impact startup exits.
Venture capitalists and founders were already worried about exits after Visa’s $5.6 billion acquisition of Plaid in 2020 was canceled after a tough battle with regulators. And the appointment of Lina Khan, known for her antitrust research and agenda, as the chairperson of the Federal Trade Commission in 2021 didn’t do anything to quell those concerns.
Still, Figma and Plaid are only two examples of startups being impacted by antitrust and competition regulations in recent history. Yet, since the Adobe-Figma news broke this morning, discourse is already leaning toward how this will hurt startup liquidity; some VCs are even saying that large startup acquisitions are going to be off the table.
But if you look at the data around startup M&A, that sentiment feels more like fearmongering than an actual reflection of what the startup exit market looks like. In fact, the vast majority of startup deals look nothing like the Figma or Plaid deals.
The median exit value of U.S.-based startups this year was $64.5 million, according to PitchBook. That is less than 1% of the value of the $20 billion Adobe was ready to pay for Figma. What’s more, the majority of startup acquisitions don’t involve nearly as much market share and influence as this deal.
While the past couple of years have been particularly hard for startups trying to find a buyer, historical data indicates the numbers haven’t actually changed that much. The median acquisition value of a startup in the hype days of 2021 was $65 million, according to PitchBook. In 2020, it was $61.1 million.
It’s also important to remember that M&A has been the most popular path startups have taken to exit over the last decade, regardless of the scrutiny involved. Even in 2021, when everyone and their uncle was doing an IPO, there were still more than four times as many acquisitions as there were public listings.
I understand why some investors and startups would think the Figma deal would have a negative impact. This is the business of home runs and hype, and seeing a potentially huge and monumental exit getting scrapped due to regulation isn’t something to get excited about. But investors need to get real for a second: This deal involved one of the most highly valued startups in the world.
The vast, vast majority of startups will never find themselves in this situation. Although significantly smaller, Plaid’s situation wasn’t a common one either. We currently have a lot of startups saying they’re worth more than $5 billion due to inflated valuations from 2021, but the majority of those startups will likely sell for much less than their blown-up price tags. Many companies of that size won’t pursue the acquisition route either. Records don’t define industry trends; medians and averages do.
It’s also worth paying attention to the fact that Figma customers are happy that the deal isn’t going through. While the acquisition would have been a good outcome for investors, having thousands of unhappy customers creates bigger problems down the road. It could even open the door for another upstart to come in and lure customers away from the legacy company they were avoiding by using Figma in the first place.
We should also care to remember that there were a lot of notable startup transactions this year that did not draw the regulators’ ire. From Databricks’ $1.3 billion acquisition of MosiacML to Visa’s $1 billion acquisition of fintech Pismo, big-ticket acquisitions are absolutely still happening. Visa’s failed acquisition of Plaid did little to stop it from being a startup buyer.
Saying that large transactions failing due to scrutiny will change the startup market in a meaningful way is the equivalent of me, a journalist in her 20s, complaining about a potential wealth tax. I’m complaining about a damper on an already idyllic and unrealistic situation. The majority of startups who consider an acquisition to be their best exit option shouldn’t worry much about the fallout of this deal getting blocked.