Deal or No Deal? | EP 1
Description
In this inaugural episode of the UNinvested podcast, host Sahil Seth dives into the recent blockbuster acquisition of Figma by Adobe. As a broke college student passionate about venture capital, Sahil analyzes the implications of this $20 billion deal, exploring whether it's a defensive move by Adobe or a strategic play to dominate the design software market. He also draws parallels to Facebook's acquisition of WhatsApp and discusses the potential impact on innovation and competition in the industry.
What We Explore:
The significance of Adobe’s $20 billion acquisition of Figma
Justifying the high valuation and revenue multiples in the deal
Adobe's motivations and strategic goals behind the acquisition
Comparisons to Facebook's acquisition of WhatsApp and its defensive nature
Potential integration plans for Figma within Adobe’s ecosystem
The reaction of the design community and concerns about innovation
The role of regulatory bodies like the FTC in such large acquisitions
Future implications for competitors like Canva and the broader market
Where to Find Uninvested:
Website: https://www.uninvested.org/
In this Episode, We Cover:
[00:00:00] Introduction and purpose of the UNinvested podcast
[00:00:24] Overview of Adobe’s acquisition of Figma
[00:00:56] Discussing the $20 billion price tag and revenue multiples
[00:01:31] Adobe’s motivations and potential defensive strategies
[00:02:24] Comparisons with Facebook's acquisition of WhatsApp
[00:04:00] Potential integration of Figma into Adobe’s product suite
[00:06:00] Concerns about cannibalization and market impact
[00:08:00] Reaction from the design community and innovation concerns
[00:10:16] Adobe’s plans to keep Figma operating autonomously
[00:11:00] Retaining and gaining new customers post-acquisition
[00:13:00] Discussing legacy companies buying startups
[00:15:00] Regulatory scrutiny and the role of the FTC
[00:16:00] Potential impacts on competitors like Canva
[00:18:58] Closing thoughts and preview of the next episode
Hey guys, welcome to the first episode of the UNinvested podcast. My name is Crockett Callaway. I'm Sahil Seth. And today we're gonna be kicking off the inaugural episode of the podcast. Why UNinvested? To be completely honest, we're two broke college students who don't have any money in the game. The only thing we have invested in the venture capital space is our own interest. And so every episode, we're gonna be breaking down exciting things that are happening in the space.
Really interesting investments that have recently happened and really just general venture capital and investing news. So what are we talking about today? Today we're gonna be talking about Adobe's acquisition of Figma, for those of you that don't know, Adobe is really just the grandfather of everything design, you know, Photoshop, Lightroom, all these applications and they just bought, you know, possibly one of the hottest startups, Figma, for 20 billion dollars. And something we really want to get into here is how can they
Justify this sticker price of 20 billion dollars. It's interesting, you know, we've seen before they have they raised nearly 338 million dollars in funding and to date, the revenue is not at that. I mean they bought it for 20 billion dollars. What's the current revenue right now? So they just doubled from 200 million to 400 million.
So that's a 50x revenue multiple and for those of you that don't know what that means, essentially, the sticker price is the revenues times some X amount, in this case, it was 50X, which is a number that would be crazy even a year ago when venture capital was pouring all this money into startups. Even now when we've pumped the brakes during this current recessionary environment that we're in. So I think to justify that 50X multiple we have to look at like what are Adobe's motivations in the first place, right?
Because like we have not seen an acquisition like this and by the way, that hasn't gone through yet, like the FTC still has to check it out. That's something we'll get to later in the podcast as well. But what are Adobe's motivations behind this? You know, Adobe is a legacy company. Like I said, you know, some could say they're failing. You know the age of having, you know, this suite of applications is really not something anyone wants anymore. Everyone wants a one-platform business and they saw Figma as really their number one competitor in the space.
You know, they're really fast-growing, the year-over-year growth is insane. Like we said, they still were able to manage doubling revenues from a staggering number of 200 million to 400 million. So we want to think about, do you think this is really a defensive move or what other motivations do they have for this?
So I like to think of it as defensive, and I think the biggest thing that jumps to mind is, is when have people done things like this in the past, and have those actions been defensive or offensive? And so the first thing I think of is Facebook buying WhatsApp, for example. So we see like 2008, WhatsApp starts super small, a private messaging company. Obviously, Facebook at that point had already been up and coming, and they're continuing to grow like insanely rapidly.
But then somewhere around 2011, Facebook starts to notice what WhatsApp is doing, a bit freaked out that it's just first and foremost a social messaging platform because Facebook was starting with Messenger which they thought was going to be the next big thing. They end up buying WhatsApp in 2014 for at the time $19 billion, which I did a little inflation adjustment; that's like $23 billion today. So even bigger than the actual deal we're talking about today, the Figma acquisition.
But at the time it was completely defensive; Facebook was saying at the time that the biggest threat to their growth and their future product success, especially for Messenger, was WhatsApp. And so, you know, they bought it out, completely wiped it off the market. I mean, it still exists in the market today, but like completely eliminated a competitive threat.
And so I think today when we look at what are Adobe's threats in this space, their biggest threats are like these huge, new, innovative game changers in the space, and that's why designers love Figma in the first place exactly. It's just that one clever platform, but just jumping to the point about Facebook. You know, they've been known to make these defensive maneuvers, think about buying Instagram.
But something I really want to think about is Facebook really didn't integrate WhatsApp, and they really kept them separate. You know, but I think Adobe's going to take a different route here, and they're really going to like integrate Figma. There's not going to still be 'Figma by Adobe' or maybe just Figma by itself. I would think they're going to make it one cohesive platform, you know, unlike what Facebook is doing.
They kind of had this cannibalization of their same customers, you know, we have the young people going on Instagram, old people still going on Facebook, and really like no mix of the in-between here. So that's one of the worries I have about you know, Adobe trying to keep Figma separate is they're really going to cannibalize their existing market rather than merging it. So, I mean when we talk about that existing market, to like I think at the end of the day, the UI UX space is completely driven by designers. It's like a weird like cultish space a little bit.
Designers have these toolkits of like products they use, their own product suite if you will, and they're like super culty about the things they like and they build these like online Reddit communities behind what they like, and there are actually a lot of people right now who are super unhappy with the deal from the designer end.
There are massive communities of designers who are kind of outraged at what's happening because they've seen before previous acquisitions of smaller UI startups and UI integrations where their integrations and really their innovation just halts once they get acquired. Do you think like what Adobe's gonna do right now is like because you mentioned they're gonna integrate them into their product suite.
Do you think their idea is like keep building it or kind of just like fizzle it into what they have right now? Yes, so my only thought is you know, I was reading on TechCrunch, they had this really big idea that Adobe is essentially gonna go into Figma, if you will, set up a Figma becoming, you know.
Just another part of the Creative Cloud suite and I really think that's what's gonna happen, that Adobe's gonna become Figma. We have this one cohesive platform, you know, you're gonna be on Photoshop, I could be doing it right alongside you because that really is the future, this collaborative nature of companies going into the future.
You know, we can't have this, you know one product here, one product there. And then you combine them at the end who really need to be working on it start to finish together to really understand the customer, that aspect for these faster and faster iterations that you know, the current market landscape is calling for. So your idea right now is that right, Adobe has bought let's say let's imagine like.
Six months from now FTC puts a green stamp on this deal goes through right which by the way, I'd be like I would say six months is like probably kind of liberal with that like I think it's probably closer to a year until this goes through.
Because by the way, like this is essentially monopolies what they're creating. Yeah, we can talk about that you know these legacy companies buying sharks, but we'll pump the brakes on that for now.
We'll put the brakes for a second. So my idea let's say imagine they put a green stamp on the deal. Yeah, next year a year from now is you log on to Adobe.com and when you go to manage your subscriptions on their Creative Cloud, which is just their suite of platforms.
Do you have access to buy Adobe Figma or when you log on to Figma's website just as Figma by Adobe like who's retaining kind of a larger brand image and ownership here? I think it has to be Adobe. They're not really going for a complete rebrand. I want to say like into Figma, they don't want to steal essentially Figma's thunder and say oh, we are now Figma, Figma's our competitor.
That's really kind of like submitting to them rather than they're gonna take the best aspects of Figma and kind of use it to refuel Adobe in that nature really try to take over Figma's growth for themselves and like reestablish themselves as this number one player, you know going into the future.
Mm-hmm. See, I mean my idea though there is that I think the most important thing to like when we talk about like who's retaining brand ownership, right I think we have to go back to my earlier point is designers in the first place, right?
Because designers' biggest thing is that they're afraid that they're gonna go log on to Figma.com and it's gonna redirect them to this like old grandfather legacy product like Adobe XD that now just has little snippets of what they liked from the past.
But at the end of the day people jump onto Figma and I think this is something that hopefully we'll discuss in future podcasts, people jumped on it because it was just an insane amount of innovation happening really quickly.
I mean Figma is a sub-10 year old startup, right? And they've done more stuff, you know, native real-time like collaborative editing, you know prototyping and stitching between the UI to UX landscape.
They've done stuff that like hasn't been available before and I think people's fear is that look we invested our time our efforts companies have invested enterprise level subscriptions into Figma and now Figma is just gonna revert back to what people stopped using ten years ago.
I think that's their fear here, but I could be totally wrong. So you're kind of thinking like Figma is gonna like fade away into the fold that is the greater, you know Adobe what it is? That's my fear here.
And I think look if we talk if we go back to what we just talked about about being a defensive maneuver I think really defensive maneuver right like they're eliminating their competition.
But I think when we look at it from the consumers' perspective, it might not be in their best interest. I think there's that there's this real fear here that, you know, they're going to be completely stalled.
I don't know my thoughts are really that, you know, like you were saying you're going to type in figma.com and that's going to be the same as typing adobe.com. It's going to be one application, maybe just even one online platform.
I know it's going to take a lot of infrastructure to really take all those separate applications like we talked about, Photoshop, Adobe XD, and bring them all into one like application, but that is really what I think Adobe needs going into the future.
You know you're not going to be able to pick and choose which different suites you want maybe that will based on like their different subscription models they have like you have access to all of these or you have access, you know only to two of the products.
But I do think it's going to be one interactive platform now going forward instead of like multiple separate platforms.
I will say though, a recent quote from Dylan Field, who's the co-founder and original co-founder of Figma and still continues on, he recently said Adobe is deeply committed to keeping Figma operating autonomously and I will continue to serve as CEO and so I think this is kind of insinuating that they want them to remain completely separate.
I think that like there's probably a fear on his end that that joining them a little bit more like they know who their competitor is, they know that their main competitor is someone who people view as very old and so I think like I actually kind of disagree. I think that way.
Although what I'd like to think is Adobe's gonna swallow them up. Like I think there's gonna be real pressure and this is probably part of the deal in the first place.
Yeah, I find it very interesting because you know Adobe did I believe they bought Figma with half a stock essentially when Adobe was in the attempt of buying back shop really doing like a reverse maneuver to buy it by thing.
So I wonder if like that was part of like the stipulations how you know Figma, they want some stake in Adobe rather than just like becoming Adobe itself.
Which is interesting though because I don't know because I now you're talking about like keeping them autonomous. I feel like they're really just gonna cannibalize their own market like Adobe customers are just gonna become Figma customers.
Essentially, I mean from that perspective like do you think it's gonna be like they're forced to almost like they have they have no real choice in this matter, they just get introduced to this new Figma.
I don't like Adobe Figma is maybe the new service will pioneer like they just get introduced and they're forced to do that. Or do you think they're actually really gonna lose that market?
I think they will lose that market because this ties back to you know, like that Facebook Instagram thing. Facebook really did lose that market, you know, we can see Facebook is going through their own turmoil right now.
You know, they've tried other rebrands with Meta, Metaverse not panning out. Maybe they will in the future.
But my fear is that this is really just like a Facebook-Instagram parallel where this giant legacy company, Adobe, you know, they bought this very hot up-and-coming startup now like high-growth company, and you know, they're just competing for the same markets in that aspect, but so what I look at is a little bit different, too.
So when we think about them losing this massive market just because of the sticker price and their previous market share, let's go back to that. Let's look at when Facebook bought Instagram, right?
Yeah, one of the reasons they bought Instagram is because the demographic for Instagram was way younger than Facebook. It's true, and they didn't want to lose out on that market, now Figma, at the time of the purchase had 77% of the market, and so you could say they were already a monopolist in this market.
Yeah, Adobe, who was kind of like poor, shriveling out like disheveled, who's by the way, their stock sticker price was down 46% I think over the year, something like that. This was completely like look we have way more money than you, but you are on a way better trajectory than us.
And so I think it's like, and in this case, and this is my larger point when Facebook bought Instagram, even though they had this dominance over the market, I don't think they lost much of their consumer base; consumers were kind of fine, that like that remaining with existing.
Consumer base will stay the same for Adobe, you know, Adobe's not gonna lose to Figma. But I'm saying, what about the new people, you know, like we just made our logo off of Figma for free. Like you're not gonna go use Adobe. Yeah, you're gonna stay with Figma. How can Adobe compete to get new customers then?
How can they compete to get well, okay, let's take it like one by one. So there's the question how can they compete to get new customers? But then how can they retain their own customers and kind of like avoid churn, right?
And so I think when it's retaining customers, it's just they have to remain they kind of like garner that loyalty just by continuing the path of innovation like being very transparent a quote like that from Dillon Field about her remaining on as CEO. I think it's like really important.
Yeah, especially for this huge very like invested consumer base in the design industry where people are like constantly obsessed with what they're they're working on. But when we look at like gathering new consumers, I don't know.
I think it's like I wonder if they're gonna continue to be an industry cannibal and just go after all of these startups that we see today are already integrating with Figma. Yeah, I wonder how that's gonna change those integrations in the first place.
I think Sahil and I were chatting about this when the deal initially happened. There are hundreds of startups now whose entire existence is dependent upon Figma, right? Like they exist so that UI designers can just pull them into the toolkit and integrate them.
I mean, do you think they're gonna lose all those as well or like I don't know. It's just a question. Let's see in the future.
I think they will lose in the at the end of the game, they're gonna pour all their money into Figma. But I sort of know going back to our first point of you know a 50x revenue multiple if we're not seeing like Adobe's core business itself getting any increase in revenue rather than just you know taking on Figma's revenue.
I think maybe an interesting note on that topic is because I feel like at this point right like we could pick this apart all day, but I think something that's really interesting here is when you're in a position like Adobe was where you are, although you have a ton of capital,
Your shareholder support is tanking, your stocks are down, people are not using your services, Figma owns 77% of the design market, meanwhile, Adobe's been pumping millions into Adobe XD and Photoshop and Lightroom over the last 15 years.
In general, what are your options as a company because they chose to make a maneuver, right? We're gonna buy out this company exactly. There's also the, you know, you could pivot to a different product, you could go target another consumer segment like what are your options? Like how do you weigh your options in that position?
Exactly, I think this makes like a good segue to our next point about legacy companies going out and buying startups, like should this deal even go through it really sets a precedent that you know these legacy companies, they have all this money, billions of dollars, can they just
Swallow up startups and no one can really compete anymore? Like do we think legacy companies should be allowed to buy startups, you know, up-and-coming high growth companies like Adobe bought Figma, but does this really kill innovation? Do we think or does it bolster it in fact by having these capital injections?
Well, look I think at the end of the day companies are allowed to do whatever they want, right? Like that's part of the beauty of operating in a free market. I think to by the way, like with the regulation of the FTC to make sure that you're not completely running out the competition,
I don't know to be completely honest. Like I don't know what the FTC specific regulations are, you know if they let Facebook buy WhatsApp which has been heavily contested and many people think it was a horrible decision especially given in the last two years all the controversy we've seen over social media gathering people's information.
I don't know. I assume like I assume the deal will go through otherwise they'll be like insane scrutiny, but maybe there should be like more of a specific metric right like if your market share is over a certain amount, like you should not be able to buy a company that is too close to what you do.
I don't know. I think at the end of the day like they're completely allowed to do it. Someone made a smart decision on Adobe's behalf whether or not you think that they're like completely erasing the competition or they're harming Figma fans out there and like stalling the design industry, they made a smart business decision.
So I don't I mean do you feel that like there should be tighter regulations on it? No, I think the deal should be allowed to go through my only worry is you know, if I'm a startup I have a great idea,
How am I gonna compete against Figma now like you were already unable to compete against them? Like I said seventy-seven percent of the market now. They're backed by this billion-dollar public corporation. They could just do it,
You know Facebook does, someone comes along or like TikTok does, someone comes along with a great idea like BeReal did, you know, you just make it internally now and you just put it on your own platform, it's like an extra feature.
So like I just worry that this could pause innovation like you're saying in the design space. Like obviously, Figma will keep you know progressing and innovating themselves but I think the greatest innovation comes from the pressure of your competition.
And you can see what everyone else is doing and finding new ways to beat out competition. But if you can just build something internally, how can you really compete against that?
Yeah, it's there's a gradient of competition right like minor or like mediary competition that helps thrive innovation like yours or how spur innovation and you're talking about but when the competition owns a hundred percent of the market like it's not a company it's a brick wall. That's not competition. Um, my question for you though is,
What do you think Canva's response is gonna be now?
I don't know Canva, you know, I don't you guys have seen they recently released a new workspace, they're kind of competing with Google's workspace in this suite in this case, but I don't know what they're gonna do.
I think they might you know pivot into their own niche a little bit be more for like the beginners. They might say, you know with their templated versions rather than Figma's for for the advanced.
So kind of catering towards people, you know that are beginning but I wonder how they can hold on to those people because once you become more advanced in UI UX design, like you eventually go to Figma, but just because it's a more powerful program.
So what are your thoughts on how Canva can really hold on to their customers?
Look, I think Canva is quaking right now. Yeah, I think they're absolutely terrified. If I'm the Canva co-founders, I mean, you're probably in talks with the FTC trying to lobby this not to go through.
Yeah, you're probably in talks with execs at Figma, thinking about how to respond. I think their biggest thing right now is Canva attracts much more of a beginner market. I think you mentioned it before, and I think you said our logo straight from Canva, right?
And like what the heck do we know? And I think for Figma, you have to be more of like an intermediate or experienced designer. So maybe that's a market that they're going to really try and dive after like
I have this background fear that now this Adobe Figma behemoth is going to double up on Canva. Oh god, but then I don't then like how do you, where's your attention coming from?
Like what is stopping someone, you know, from building the skills on Canva and then just leaving Canva? How do you incentivize people to stay? I don't know. I don't know the answer.
Yeah, I mean, I think that's something that we're gonna have to leave to discuss further in the next episode. But I'm Crockett Callaway, I'm Sahil Seth, and this has been UNinvested.
