From ex-Adobe employee: On Adobe acquiring Figma

Hey Everyone! ⭐

Before I started working full time on my startup, Typogram, I worked at Adobe. Here are some thoughts I wrote down regarding the news about Adobe and Figma. Orginially published in my build in public newsletter.

Last week was eventful and, based on one’s stock portfolio, painful. Over the years that I worked at Adobe, I bought into the ADBE stock through labor (RSU) and money (ESPP). A big portion of my net worth is held in ADBE stock, and that stock sunk 20% on a single day — the day they announced Adobe would acquire Figma for $20 billion.

This newsletter series started on Aug 2nd, 2021, days after I left my position at the Adobe. Prior to founding Typogram, I spent a year and a half working on Adobe XD and five years on another Adobe acquisition Typekit (now called Adobe Fonts). I felt the blow on multiple levels. One that I was once devoted to Adobe XD, spending days and nights trying to win the battle with Figma, but now the acquisition announces Adobe XD’s premature defeat. One that I mentioned earlier — the blow in my wallet.

$20 billion is four times over-priced

Let’s begin with the wallet blow. Not every investor of ADBE stock is like me, who held a grudge because they worked on the internal competitor product. Why do other investors hate the acquisition, as shown by the stock price plunge? The simple answer is that the $20 billion price tag is too expensive.

Startup evaluation is complex, but there are shortcuts we can take to do a rough estimate. We can try to estimate in two different ways:

  • Figma last raised funds at a valuation of $10 billion in June 2021. At first glance, it might make sense: Figma is doing so well that it doubled its valuation in a year of time between 2021 and 2022. Except 2021 is at the peak of startup valuation, most startups cut their valuation by a lot in 2022, including those doing well. Taking Canva, another contender in the design space, for example, its valuation declined from $40 billion in 2021 to $26 billion in 2022, despite that they are doing well. Apply the same ratio to Figma, the Figma 2022 valuation is estimated to be $6.5 billion.
  • Another way to peek at a startup’s valuation is by revenue and growth multiplier. High-growth startups may have a high multiplier like 10x. Figma is targeted to hit $400 million in revenue, assuming it has already hit the target revenue, multiple by a high multiplier of 10x — its valuation is at $4 billion.

I think the actual value of Figma is around $5 billion. $20 billion would be four times overpriced; hence investors dropped the stock on the heel of the acquisition announcement. Nobody likes a bad deal. To reach such a deal, it must be Adobe begged to acquire Figma; it was not a level field negotiation. Why does Adobe need Figma so badly?

Organization chart oddity

Reading Figma’s CEO’s blog post announcement, after the acquisition, he will report to David Wadhwani, not Scott Belsky, which stands out as odd to me. Scott Belsky is the person in charge of Creative Cloud. You may see him in every Adobe Max keynote talking about Creative Cloud products. After the acquisition announcement, the “design Twitter” jokingly mocked up Figma’s app icon in Creative Cloud form — it was transparent to everyone that Figma would be part of Creative Cloud; then why does the Figma CEO not report to the head of Creative Cloud?

img: Internet meme about Figma being acquired by Adobe

The answer, I now speculate as an outsider, is that David Wadhwani is the one who led and pushed through the acquisition, not Scott Belsky; therefore, the new Figma org reports to him.

Adobe has invested heavily in Adobe XD, first announced to public as Project Comet in Oct 2015, 7 years ago. While it is surely not as popular as Figma, it is nothing less than a successful product, strengthening the Creative Cloud ecosystem. According to the 2021 design tools survey (the latest, 2022 survey has yet to come out), Adobe XD is the 3rd most popular UI design tool and 2nd most popular UI prototyping tool. Compared to 2020 design tools survey, Adobe XD is on the rise — it jumped from 3rd to 2nd place in UI prototyping category and shortened the gap between itself and 2nd place in the UI design category:

img: Design Tools Survey 2020 vs. 2021, source: uxtools.co

As a user, we may view products as 1 or 0 — if I don’t use it, it almost doesn’t exist. But the market is vast and diverse; you might be surprised how many companies are using Adobe XD over Figma. All this is to say:

  1. Adobe XD is a considerable investment; Adobe has worked on it for more than seven years;
  2. Adobe XD is rising, not failing

Figma not reporting to the head of Creative Cloud sends a bad signal to me, almost a red flag. Did a group of business people decide to buy Figma without any serious consideration of Adobe XD’s effort? Have the “decision makers” ever even opened Adobe XD before they come to the conclusion that Adobe must have Figma for $20 billion? For Adobe to either admit XD’s defeat and have Figma annex XD, or strategize upon having two similar products grow side by side, it should most certainly involve the team who spent 7+ years building Adobe’s equivalence of Figma. It would be ignorant not to consult with them and have a thorough analysis of what Adobe XD is lacking in comparison to Figma and how difficult is it to build the missing parts.

Conflict of interest

Who is David Wadhwani, the person Figma is going to report to? I have never heard of this name while working at Adobe. A little further research shows he joined Adobe in June 2021, just over a year ago. His last position prior was Venture Partner at venture capital firm Greylock. In his LinkedIn and Twitter profile, he is still a partner at Greylock; unknown to me whether it is outdated information due to lack of updates. Greylock invested in Figma in Series A, B, C, D, and E! Figma Series A’s price was $0.2 per share; it 200x’ed at the acquisition deal. I think there is a conflict of interest for David to lead the acquisition of Figma in Adobe, if David is still working for Greylock or if he has personally invested in Figma.

img: Figma’s funding history

For context, Elon Musk got sued by shareholders in a similar situation. Musk’s company Tesla acquired SolarCity, a company founded by Musk’s cousins and backed by Musk. However, Musk did win the lawsuit in the end. With the context in mind, I believe it is reasonable to raise the question about conflict of interest, while it needs more investigation to allege there is actual wrongdoing.

“Forward-looking statements”

While there is nothing I look forward to in this transaction, the “forward-looking statements” disclaimer from Figma’s CEO is an interesting read, which I quote below:

…such as Adobe’s ability to enhance Creative Cloud by adding Figma’s collaboration-first product design capabilities and the effectiveness of Figma’s technology, might not be realized within the expected time frames or at all…

I painfully laugh at this disclaimer, for how true it might be. I think the best outcome for users is for Figma to remain largely the same. But even with Adobe keeping Figma as independent as it can be, it will develop and grow at a much slower pace since there will be no venture capital funds pouring in, and Adobe’s resources drained to pay off the acquisition cost. The only winner is Figma investors. This acquisition is a lose-lose-lose situation for Adobe, Figma, and the design community.

With accelerated stock vesting triggered by the acquisition, a lot of Figma employees will jump ship to their next adventure. It is hard to blame them — they are rich now, so why not become angel investors or found their own company? That is the bright side of this acquisition — more competition is always better. Figma helped Adobe XD become better, and vice versa: “Smart Animate” came from Adobe XD to Figma; “Live Co-editing” came from Figma to Adobe XD (Ah Yes, Adobe XD supports multi-player mode for three years now). I await to see what the design tool experts from Figma will bring to the world next.

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  1. 3

    Interesting insight, glad to have an insiders perspective.

    I'm not a fan of the buyout (I'm not sure anyone is?) given Adobe history of pretty awful treatment of the design community. I've never really used Adobe XD and don't doubt that it was a decent product, but for a $20bn aquisition it's likely due to the large customerbase Figma has, and Adobe being extremely worried at their loss in marketshare in this area.

    Whilst dropping 1/7 of Adobes total value on an aquisition might seem utterly bonkers on first glance, if its to save the company from consistent decline then it makes perfect sense, even if nobody likes it.

    I dread the day they integrate it into the utterly awful Creative Cloud service. I dare say the folks over at Sketch were thrilled about the announcement as it will no doubt cause them to experience somewhat of a revival after their brief period being the new great thing to use several years back.

    It'll be interesting to see how Adobe play this. I would assume XD will be wound down and the team merged into Figma, but it's Adobe so you never really know. They've got a history of destroying their aquisitions (see Dreamweaver and Fireworks for example).

    1. 1

      User acquisition through product acquisition is like transplant fruits from one tree to another tree — the fruit may just rot. Startup is more than just an investment vessel, it has hopes and dreams on its own. I hope more corporate leadership can see that. Selling Figma to Adobe makes sense for Figma founders and investors, but it hurs Figma itself, and its users. Winding down Adobe XD eliminates another competitor on the market, as I said in the article, Adobe XD propels Figma to be better in many ways, (and vice versa).
      I hope another app can rise in midst of this. Sketch being one of them, I checked out a few other alternatives like PenPot and Lunacy, looking interesting and promising at first glance. I am gonna keep playing with them.

  2. 2

    Very interesting insight into this. The involvement of some VC bro just highlights how crappy this will probably go.

    I'm a fan of Adobe XD btw, even participated in the 1st beta program with it, and XD is one of the only Adobe tools I still like to use.

    For UI work at least I feel Adobe also has an Illustrator/Photoshop problem in this acquisition. I'm guessing with XD, Adobe is unwilling to cannibalize too much functionality for UI design from their bloated flagships (bloated for UI design). That is exactly why people choose a Sketch, Figma, or back in the day a Fireworks over the Adobe suite. It isn't just the interaction pieces it's also the "just enough" design editing capabilities with the right value pricing. I don't think Adobe can leave the design editing of Figma alone, they seem unwilling to impact PS/IL.

    Hopefully with XD/Figma it won't go how Fireworks/ImageReady went. They get threatened by competitor, buy competitor, gut their own product/team, then slowly sabotage anything that's similar to PS/IL.

    1. 1

      It is great to meet a XD fan! I am so worried to see what they will do next. It is gut wrenching to watch for it to go either direction -- winding down XD and merging the team into Figma, or have them both exist side by side and slowly kill Figma's awesomeness.

      Fireworks was truly one of the greatest missed opportunities. It was before Sketch and Figma, it could have grown into the UI design space, coming from the very adjacent web design roots. I think killing it without a replacement for web design left a “power vacuum” that was claimed by Sketch and then Figma a couple of years later.

      Another miss was Adobe Edge Reflow, the same idea as Webflow, but a few years ahead of its time. Some of the people in Reflow later worked on Webflow (I think). Adobe should invest in Low Code and No Code, they had roots in code-related products, like the Adobe Edge suite, Flash, and Flex Builder (a great product in my opinion!). That is one advantage that Figma has not figured out yet.

  3. 2

    Really interesting insight.

    My amateur take, the valuation of Figma at $5b definitely sounds right when it's a solo business. But maybe it really is worth $20b when it's amplifying the full Adobe business. Maybe it'll be one of those reverse takeover situations where people from Figma move into positions of leadership at Adobe, and their DNA helps create a new suite of web-native live-multiplayer creative products that are just as slick as Figma.

    1. 2

      The thing is that Adobe doesn't need that technology, lesser known to the outsiders — they already built a team to work out the live, multiplayer, and web-based core technology. That team's progress can be examined with Photoshop on the web, and Adobe XD's live co-editing ability. It is not as good as Figma, but the Figma technology is not what Adobe desires. It will take even more effort to transport Figma's tech to Adobe's other software (Figma core tech was built for a solo product, where the web team is building with Illustrator, Photoshop, and other Adobe products in mind), I think the internal effort is even closer to achieving that goal.
      The DNA, or in other words, the amazing talent of Figma is good for Adobe, but I doubt many will stay for that much longer at Adobe.

  4. 2

    Personally, I would respectfully disagree with Figma being overvalued here.

    $20B valuation is certainly a huge number considering it's targeted to hit $400M in revenue but I think you might be downplaying its exponential growth year-over-year. Someone I know well actually works at Figma and, from what I understand, the growth is almost mind-blowing; they are also an innovative company that has a roadmap ahead with products like FigJam.

    I totally understand where you're coming and I'm really sorry to hear about the unpleasant/unfortunate experience but, with regards to overpaying, I'd say otherwise based on my knowledge of its past and current state.

    1. 2

      Points taken on the valuation of Figma. Some people are also saying that with Figma's amazing growth, they can have a 30x multiplier, with that, it is worth 12B, plus Adobe desperately wanted it, paying 8B more is justified. Valuation is really complex, and in a way, Figma's valuation is justified by Adobe wanting to pay this much for it.
      Although in my opinion, Adobe should not be as desperate, based on what I know about XD. A lot of the tech issue is resolved including multiplayer co-editing. Adobe XD is on a good trajectory. It takes more than just feature parity to compete with Figma, it also takes marketing, community building and time. Adobe XD started late comparing to Figma, and not as well-resourced as Figma (internal product sometimes gets less funding than how much a startup star like Figma can get from VCs), expecting it to beat Figma by now is unrealistic, but thinking it is already defeated is too pessimistic.

      Congrats to your friend on the exit! It is a great product, and it had a great run under their supervision.

  5. 2

    As an insider would you think that Adobe bought the Figma to kill it? Similar to what they did with MacroMedia back in the day?

    1. 1

      I don't think so. For an expensive purchase like this just to kill it would be suicidal. Figma's $20 is 1/7 of the entire Adobe at the current state.

  6. 2

    it will be interesting to see what happens with XD. thanks for this post!

  7. 1

    "adobe xd is rising"

    Maybe, but Figma is sky-rocketing and if Adobe have the money to spend in order to secure that market share then what's the issue?

    1. 1

      I don't think buying Figma is wise for Adobe, on the day of its annoucement, the ADBE stock dropped 20%, that is $30 billion of Adobe's market cap gone. The real cost of Figma purchase goes well beyond the $20 billion. It will take years to make the money back on the investment. The sunk cost of Adobe XD development adds to the Figma purchase too.

      Figma is not the missing piece of Adobe's creative software empire. Adobe needs to cover UX design -- which is what Adobe XD already does. For the companies "trapped" in Adobe ecosystem, they are using Adobe XD for their UX needs, not having the best UX design tool like Figma is not the deal breaker. The companies who are using Figma, will not be "trapped" back to Adobe either — they are companies that don't really need other Adobe software like AE, Illustrator, Photoshop, etc. they can find alternatives of Figma and remain free from Adobe.

      Does Adobe have to have the best software of each of the creative software categories to be an empire, my opinion is NO.

      1. 2

        Pretty sure the money people at Adobe have a rationale for their decision.
        No-one drops 20b on a whim.

        1. 1

          You do realize that the decision makers don't personally drop $20 billion. Not only that, they might even make money while the company loses money.

          1. 2

            Oh sorry I thought they all chipped in money together out of their kids savings accounts.

            1. 1

              pleasure talking to you.

  8. 1

    This is incredibly well written, thank you - very interesting!

    1. 1

      thank you, glad you enjoyed it!

  9. -2

    This comment has been voted down. Click to show.

    1. 2

      Spam alert, everyone please don't click on this link.
      Mod, I wish there is a delete comment feature, maybe you can delete it?

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