On Dec. 18, a $20 billion deal by Adobe, the software giant, to buy Figma, a San Francisco start-up, 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. “Figma’s best and most innovative days are yet to come,” he wrote.
Behind the scenes, the start-up, 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 had planned to pay for it. Some employees, who were expected to reap huge profits, are deflated. Figma offered severance pay 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 technology sector that has been changed by the frenzy over artificial intelligence. He is trying to continue a breakneck pace of expansion to win customers, recruit new workers and please investors, according to 15 current and former employees and investors, many of whom declined to be named due to nondisclosure agreements.
“It really feels like the rug has been pulled out from under your feet,” said Jason Pearson, who left Figma in 2021 and owns shares in the company.
Figma is a case study in what happens when a start-up on the verge of being acquired faces newly assertive regulators – and the deal falls through.
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. UK regulators have increasingly targeted technology deals with a focus on their future plans. In the European Union, regulators have asked companies to commit to making changes if they want their mergers to go through.
The consequences have been expansive. Last month, Amazon canceled its $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% of its staff.
In December, Illumina, a genetic sequencing machine company, agreed to sell Grail, a cancer test developer it bought in 2021 for $7.1 billion, after battling U.S. and European regulators . The FTC is also scrutinizing minority investments, such as Google, Amazon and Microsoft’s backing of AI startups Anthropic and OpenAI.
Figma and Adobe canceled their deal after Britain’s Competition and Markets Authority found the merger would eliminate competition for product design, image editing and illustration software. U.S. and European regulators had also been studying the acquisition.
The ripple effects are being felt deeply in Silicon Valley. For decades, investors have poured money into fast-growing startups, hoping they would reap huge returns when the companies went public or sold. They then reinvested some of that money into creating new start-ups.
“In the Silicon Valley ecosystem, you invest in your friends’ companies,” said Terrence Rohan of Otherwise Fund and an early investor in Figma. “You take your financial success and pay it forward.”
Figma investors said they remain optimistic about the company’s prospects. They pointed to its growing revenue as a leading provider of software that designers and engineers use to make digital products.
Figma also went untouched 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 has been aggressively developing new products and features, including artificial intelligence capabilities, while waiting for the sale to Adobe to close.
“We’ve 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 taken our eye off the ball,” said Andrew Reed, an investor at Sequoia Capital who sits on Figma. axis.
When asked for comment, Figma pointed to Mr. Field’s blog post about the deal. Adobe declined to comment. Forbes previously reported Figma’s internal valuation and severance offers.
“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 apps online, rather than with clunky, expensive software. The start-up’s products, available for free or with a subscription, allow designers to create, edit and share designs.
Adobe, which makes design software including Photoshop and Illustrator, took notice of Figma early. At one point, Adobe tried to enter Figma territory with a product called XD, but it wasn’t as popular.
Figma employees, called Figmates, saw themselves as up-and-comers and underachievers. In a theme song they sang at group meetings, a rap verse contained the lyrics: “Ten or fifteen years from now, people will be saying, ‘Who the hell is Adobe? Figma is here to stay!’”
In spring 2020, Scott Belsky, Adobe’s chief product officer, tried 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 has expanded into more aspects of digital design. It said it is on track to reach $400 million in “annual recurring revenue,” a technical term that extrapolates monthly revenue out to a year.
Its investors, including Kleiner Perkins and Index Ventures, have praised the start-up as a “once in a generation” company. 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 solicited 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 put it in direct competition with Figma.
Celebration, then limbo
When Adobe and Figma unveiled their deal on September 15, 2022, Field said 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 start-up is often an act of faith. Employees may walk away with worthless shares, having wasted years of their lives, but sometimes they are lucky enough to end up with life-changing wealth.
“Everyone who works for a technology company hopes this will happen,” Pearson said.
Yet the deal was far from done. 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 sought 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 services and organized an 8,500-person conference in San Francisco in six months.
A survey of employees after last June’s conference showed a spike in feelings of burnout and deadline overwhelm, two people familiar with the situation said. Mr. Field later said that running the company while trying to close the deal with regulators was like having two or three jobs at a time.
Some recent hires have also stalled. The shares made up a large portion of their compensation, but new employees who left before the deal closed would lose their shares, including those they had vested or earned, after working at the company for a year, according to internal communications viewed by The New. York Times.
That policy, designed to minimize taxes, applied to workers who signed up in May 2022 or later. Amodeo said withholding equity grants for tax reasons is the norm for companies with a pending deal.
In June, the UK Competition and Markets Authority intervened. The regulator published a report claiming that Adobe and Figma could be rivals, meaning a deal would reduce competition.
To remedy this, the regulator proposed in November that Adobe divest a 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 strongly disagree with recent regulatory findings, but we believe it is in our respective interests to move forward independently,” Adobe’s Narayen said when the companies walked away from the deal in December.
Figma employees absorbed the news that they would not see a godsend. Some, who had put their lives on hold while waiting for the deal to close, were relieved to have clarity.
“Anyone who has experienced an acquisition will know how the limbo period can be the most difficult,” Hugo Raymond, a Figma employee, he wrote on X.
Mr Pearson said he tried not to dwell on the value of his Figma shares, knowing the deal could fall apart. But it was difficult, he said. He had founded an independent music record label which he intended to support with the earnings from his shares.
“You start to plan psychologically and emotionally for a very different future,” he said.
To move on
Figma has moved on. The company recently made a developer tool, called DevMode, widely available and has been pushing AI improvements to its products.
Some employees have left. Amanda Kleha, Figma’s longtime chief customer officer, is leaving, as are Figmates who accepted a recent severance offer.
Employees and early investors expect Figma to allow them to sell some of their shares this year in what is known as a public offering, 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, while they learn a lesson for their other startups. The bar is now higher to move forward with settlement negotiations, Sequoia’s Reed said, adding that a breakup commission is crucial.
The life cycle of Silicon Valley, which launders acquisition money into new companies, remains blocked. Adam Nash, an entrepreneur and Figma investor who has used his earnings from start-up stocks to back more than 130 companies, said he expects such deals to return within a few years.
“But they won’t happen now,” he said.