After the $20 billion windfall evaporates, a startup is picking up the pieces

On December 18, a $20 billion deal by Adobe, the software giant, to buy Figma, a San Francisco startup, 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, most innovative days are still ahead,” he says 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 was willing to pay for it. Some workers, who were about to reap huge windfalls, have become deflated. Figma offered severance pay to employees who wanted to quit. Just over 4 percent, or about 52 employees, took up the offer, said Michael Amodeo, a company spokesman.

Figma is also grappling with a technology industry transformed by the frenzy over artificial intelligence. It is trying to continue a breakneck pace of expansion to win customers, recruit new employees and satisfy investors, according to 15 current and former employees and investors, many of whom asked not to be named because of non-disclosure 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 of the company.

Figma is a case study of what happens when a start-up about to be bought faces newly assertive regulators – and the deal falls through.

In Washington, the Federal Trade Commission and Justice Department have raised questions about many deals in recent years, suing to block some deals and tightening guidelines for reviewing mergers. British regulators are increasingly turning their attention to technology deals by focusing on their future plans. In the European Union, regulators have demanded that companies commit to making changes if they want their mergers to go through.

The consequences have been extensive. Last month, Amazon called off a $1.4 billion takeover 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 workforce.

In December, gene-sequencing machine company Illumina agreed to sell Grail, a cancer test developer it bought for $7.1 billion in 2021, after battles with U.S. and European regulators. The FTC is also investigating minority investments, such as Google, Amazon and Microsoft's support of AI startups Anthropic and OpenAI.

Figma and Adobe scrapped their deal after the U.K. Competition and Markets Authority determined the merger would eliminate competition in product design, image editing and illustration software. US and European regulators had also been studying the takeover.

The ripple effects are being felt deeply in Silicon Valley. For decades, investors there have poured money into fast-growing startups, hoping they would reap outsized returns if the companies went public or were sold. They then put some of that money back into setting up new start-ups.

“In the Silicon Valley ecosystem, you invest in your friends' companies,” says Terrence Rohan of Anders Fund and one of Figma's first investors. “You take your financial success and pay it forward.”

Figma's investors said they remained optimistic about the company's prospects. They pointed to its growing sales as a leading supplier of software that designers and engineers use to create digital products.

Figma also hasn't even funded about $290 million of its venture capital, two people familiar with its finances said, and Adobe paid the company a $1 billion breakup fee. Most importantly, investors said, the company was aggressively building new products and features — including AI features — in anticipation of the closing of the sale to Adobe.

“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 attention off the ball,” said Andrew Reed, an investor at Sequoia Capital who is part of Figma's board.

Asked for comment, Figma pointed to Mr Field's blogging message about the deal. Adobe declined to comment. Forbes previously reported Figma's internal appreciation and severance offers.

“Who the hell is Adobe?”

Mr. 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 startup's products, available for free or with a subscription, allow designers to create, edit and share designs.

Adobe, which makes design software for Photoshop and Illustrator, among others, quickly noticed Figma. At one point, Adobe tried to enter Figma territory with a product called XD, but that wasn't as popular.

Figma's employees, called Figmates, saw themselves as scrappy newcomers. In a theme song they sang at group gatherings, one rap verse included the lyrics: “Ten or fifteen years from now people will be saying, 'Who the hell is Adobe? Figma is here to stay! ''

According to regulatory documents, Adobe Chief Product Officer Scott Belsky tried to buy Figma in the spring of 2020. 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. It said it was on track for $400 million in “annual recurring revenues,” a technical term that extrapolates monthly revenues out to a year.

The investors, which also included Kleiner Perkins and Index Ventures, were excited about the startup 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 asked for another buyer and sought a higher price, according to a filing, but ultimately accepted 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 and then limbo

When Adobe and Figma unveiled their deal on September 15, 2022, Mr. Field said 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 luck. Participating in a start-up is often a leap into the unknown. Employees can walk away with worthless stock after wasting years of their lives, but sometimes they luck into life-changing wealth.

“Anyone who works for a tech company hopes this happens,” Pearson said.

Still, the deal was far from complete. The following 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 show it was worth the $20 billion mark, two former employees said. The company hired 500 people, launched a slew of features, and within six months hosted an 8,500-person conference in San Francisco.

An employee survey after last June's conference showed a spike in feelings of burnout and being overwhelmed by deadlines, two people familiar with the situation said. Mr. Field later said that running the company while trying to close the deal with regulators felt like having two or three jobs at the same time.

Some recent hires also stalled. Stocks made up a large part of their compensation, but the new employees who left before the deal closed would lose their shares, including those they acquired or earned after working at the company for a year, according to internal communications from The New. York Times.

That policy, intended to minimize taxes, applied to employees who joined in May 2022 or later. Mr Amodeo said withholding equity grants for tax reasons was standard for companies with a pending deal.

In June, the UK Competition and Markets Authority intervened. The regulator published a report arguing that Adobe and Figma could be rivals, meaning a deal would reduce competition.

As a solution, the regulator proposed in November that Adobe divest a crown jewel of its business, such as Photoshop or Illustrator — or that Figma divest its core design offering. Adobe has rejected these options.

“Adobe and Figma strongly disagree with the regulators' recent findings, but we believe it is in our best interest to move forward independently,” Adobe's Mr. Narayen said. said when the companies abandoned the deal in December.

Figma employees absorbed the news that they would not see a windfall. Some, who had put their lives on hold while waiting for the deal to close, were relieved to get clarity.

“For anyone who has been through an acquisition, you know how the limbo period can be the toughest,” says Figma associate Hugo Raymond, wrote on X.

Mr Pearson said he had tried not to dwell on the value of his Figma shares because he knew the deal could fail. But it was difficult, he said. He had started an indie music record label that he wanted to support with income from his stock.

“You begin to psychologically and emotionally plan for a very different future,” he said.

To proceed

Figma has progressed. The company recently created a developer tool called DevMode that is widely available and has been promoting AI improvements in its products.

Some employees have left. Amanda Kleha, Figma's longtime Chief Customer Officer, left, as did the Figmates who accepted the recent layoff offer.

Employees and early investors expect Figma to let them sell some of their shares in a so-called public offering this year, although no plans have been made. The company's best option now for a payout is an IPO, which could take years.

Figma's investors have decided to be patient while learning a lesson for their other startups. The bar has now been raised in pursuing deal talks, Sequoia's Mr. Reed said, adding that a breakup fee is crucial.

The life cycle of Silicon Valley – which recycles money from acquisitions into new companies – remains stuck. Adam Nash, an entrepreneur and Figma investor who has used his earnings from startup stocks to back more than 130 companies, said he expected such deals to return within a few years.

“But that won't happen now,” he said.