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I think this is my favorite comment of the year. We've all become so inured to the idea, especially in startup land, that the purpose of building a business is

I think this is my favorite comment of the year. We've all become so inured to the idea, especially in startup land, that the purpose of building a business is just the exit (and hopefully we can get out soon enough with someone else "holding the bag"). As you point out, if Figma can build a growing, profitable business, there is no reason they can't IPO at some point. But still, this shows how even the purpose of an IPO these days is completely opposite from the original intention. I.e. the original intention was to get access to public market funds to grow a business. Now it's usually just a method of "exit" to let retail investors take the lion's share of the risk - one only need to look at 95%+ of the past few years' SPAC deals to see how much of a "pump and dump" the market has become.

Gooblebrai 3y ago
Totally agree with you. It feels like nowadays businesses are not really about making a profitable business. But about vanity metrics and get a huge exit ASAP even if the business doesn't really survive without VC injections.
endtime 3y ago
> that the purpose of building a business is just the exit The majority of those affected negatively by this are not the founders, but the employees. Many of them may have turned down FAANG positions that come with predictable liquid RSUs. Some may have kids (in fact, I know someone at Figma who had a kid in the past year). Liquidity's not necessarily about opportunistically passing on risk...sometimes it's just about making a competitive living relative to being at a public company.
- EricDeb 3y ago
  Any chance figma can go public?
  - neom 3y ago
    I'm sure these 30+ people want their 330+ Million dollars back with "profit", they need to find an exit somewhere. https://www.figma.com/blog/figmas-series-e/ https://www.figma.com/blog/figmas-series-e/
    - EdwardDiego 3y ago
      Figmates... oh God.
      - deleted 3y ago
        [deleted]
      - deleted 3y ago
        [deleted]
  - dolmen 3y ago
    Figma employees should instead ask for a share of the $1B break-up fees.
- hn_throwaway_99 3y ago
  I don't disagree with what you're saying, at all, but the implication is still basically "And employees want someone else to be a bag holder, too!" And having been in that position several times, I definitely don't blame them! Employees also have the much tougher constraints that they can't diversify their employment like VCs can diversify their investments. But still, it's the same dynamic that people want to get rich, and the downstream consequences be damned.
  - amrocha 3y ago
    In practice, employee shares in a private company are not an "investment" because they can't be traded in an open market. So no, employees don't want someone else to hold the bag. Employees want a return on their investment, and the most viable way of doing that is through an exit.
    - hn_throwaway_99 3y ago
      That's the whole point though - employees want an exit event so they can sell their shares and have someone else holding the bag.
      - crandycodes 3y ago
        That seems like an odd way to frame it, imo. "Holding the bag" usually implies something negative, as in someone will be "caught" with something bad. As in the employees are looking to dupe someone into buying what they are selling. But employees, outside of company officers, do not control what information investors get about what they are buying. They can't trick anyone into buying something, although they could theoretically benefit if someone else did trick buyers. But it's a weird take, because employees are already the ones "holding the bag". Office space, cloud compute, etc. are all sold as COGS. VCs usually have some ability to sell their shares on the private market since they can negotiate to get their capital. Employees are often the only ones which are taking an IOU for their time and effort compared to what they could get elsewhere in the market. Employees are often the lowest class of shares which get paid out last and often reliant on the board to be able to sell on the private market. Yes, the employees decided to take this offer, on good faith, that their management would look after them. They are adults who made a, theoretically, informed decision. But structurally, they are set up to be the ones "holding the bag" if things were to go wrong with an exit. So of course they want an exit. They literally have no other choice to get a return on their time/effort than for that to happen. (or some odd third thing like private dividends, but again, they have practically no control over that happening)
- amrocha 3y ago
  What does it matter if Figma employees have kids? Having kids is one of the most common human experiences.
  - deleted 3y ago
    [deleted]
- kelnos 3y ago
  And that's the risk/bargain those employees accepted when they took the job at Figma rather than some public company with predictable equity comp. Look, it sucks, I get that. I was an employee at a successful startup that did end up going public and made me a bunch of money. But I also worked at three other startups that didn't go anywhere and my options/stock ended up being worthless. I also worked at a "boring" public company with equity comp that amounted to a pretty small (but helpful!) quarterly bonus. I accepted each of those jobs knowing what I was getting into, and knowing that I probably wouldn't see any kind of big payday (the one where I did was life-changing, but if that hadn't happened, I'd still be fine, financially). That's the nature of the beast. It's disappointing when it doesn't work out, but don't play the "some of them have kids" card: people need to plan their finances based on normal, expected outcomes, not on the moonshot. And regardless, Figma still seems like a great company, with great products. Employees will still likely do really well, whether through a different acquisition or by going public. They'll just have to wait longer.
- Drew_ 3y ago
  > The majority of those affected negatively by this are not the founders, but the employees. Well yes there are typically many more employees than there are founders. Despite this, founders probably missed out on orders of magnitude more money than all of the employees combined.
- kalleboo 3y ago
  Most people who have kids make a fraction of the average salary at figma, I don't see how they are sacrificing anything
- gherkinnn 3y ago
  [flagged]
solatic 3y ago
> the original intention was to get access to public market funds to grow a business. Now it's usually just a method of "exit" to let retail investors take the lion's share of the risk Founders and employees would be totally OK with staying private, if the board would ever permit issuing a dividend. That's the "normal" way to have an "exit" (i.e. return profits to shareholders) without a public offering. The purpose of delaying issuing a dividend is to reinvest profits / additional fundraising for growth, but that growth should still result in a dividend in the future, just a larger one if the investment in growth succeeds. Instead, founders and employees are encouraged to look forward to an IPO precisely because somehow we've come to believe that it's sinful for a company to issue a dividend, as if doing so means giving up on the idea that further growth is possible, when really it's only an acknowledgement of the fact that (a) there's a healthy rate of growth, (b) that healthy rate of growth costs $X, (c) if the company has $Y cash >> $X growth cost, then the healthy thing to do is to issue a dividend (so that shareholders can invest the excess into companies that are currently better recipients), rather than attempting to force growth faster than the company can support.
- TheNewsIsHere 3y ago
  This is good analysis. As the owner of a business, I often find myself bewildered at the valuation-centric, IPO-gazing startup culture that has developed especially in tech. Most businesses in technology are nothing like the VC-funded, exit-oriented, and/or hyper-growth culture would have you think. Yet it seems like the glitz of a great IPO or being able to shell out for a $200 million annual corporate event blinds many to the reality of most businesses. I have wondered how much of this naïveté contributes to the failure rate of technology startups. I’m on my second business and I intend for it to be my last, though time will tell. The key thing I’ve learned is that hyper-growth, IPOs, and VCs aren’t really good for anyone other than the equity holders. Once you start selling ownership in your business, your customers are no longer your first North Star.
- kelnos 3y ago
  In the case where a private company has issued options or shares as a part of compensation, another way to pay back employees would be to do a stock buyback program. E.g. if I was an early employee and got options with a $1/share strike price, but the current going rate for new-employee options is $5/share, the company could offer to buy back my options from me at $4 each (or if I'd exercised those options, they could buy the shares back at the full $5 price). If the general understanding was that the founders (well, board) weren't chasing an acquisition or IPO, this might be a good deal for employees. Of course, if the company is VC-backed (and the founders don't have majority control anymore), the VCs probably wouldn't go for this sort of thing. I do actually wonder if the current trend of consolidation is driven in part by the standard VC-backed startup formula. Getting acquired is usually a lot easier than going public. Instead of startups fueling long-term competition, they just end up getting gobbled up by larger players most of the time, fueling consolidation and monopolistic behavior.
kpandit 3y ago
My favourite comment as well in this world so full of pump and dump shows. The mentality is so intrenched that if you are not one of these pump and dump shows with an exit strategy then you are labelled a lifestyle business instead of a proper "startup". [Off topic] That is some throwaway account with 60k+ karma and almost 7 years in age.
- codeptualize 3y ago
  There are lots of pump and dumps but this one isn't a pump and dump. Figma was founded in 2012, they pretty much took over UI design, did $400M ARR in 2022, great retention, rapid growth, great margins, there is a lots of actual value there and still quite a bit of potential left. A "proper" startup does indeed include an exit as that's the point where they give a return on investment to their VC's. That is the startup game, use the VC money to accelerate growth, then exit/go public. Not saying I like it, but once you take the VC money that is the game you play.
  - kpandit 3y ago
    My bad. I was just responding to the parent comment and the comment(by showbug) they were replying to in isolation. Figma is a product I liked and was so terribly disappointed with the news of acquisition by adobe. Regarding startups, I just did google "define: startup" and in the dictionary definition there has no VC and no exit.
    - porridgeraisin 3y ago
      What the dictionary says is completely irrelevant.
    - codeptualize 3y ago
      We can debate definitions and labels but that's not really relevant to the discussion imo, name it whatever you want, what I'm referring to is a company taking VC money to accelerate growth. Once you take VC money, like Figma did, your goal is a lucrative exit. It's high risk, high reward. It's a different way to build a company, and it's not really possible to change that once you take that route. Doesn't mean you have to do this. I am all for building steady profitable private companies that aim for the long run, I think it's a great way to build great companies, but then you should stay far away from VC money, take a lot less risk, have different compensation strategies etc etc.
cco 3y ago
That's the intended outcome of the incentive structure of startup compensation. Sometimes more than half of your expected compensation at a startup is in equity upside, either from an IPO or acquisition. If that is to no longer be the expectation, then hiring at startups will be _much_ more challenging because startups cannot generally afford the salaries or benefits that larger companies can offer.
- frozenport 3y ago
  that is already the case, with unlimited equity you're basically working on the founders dream in exchange for dilution

Gooblebrai 3y ago

Totally agree with you. It feels like nowadays businesses are not really about making a profitable business. But about vanity metrics and get a huge exit ASAP even if the business doesn't really survive without VC injections.

endtime 3y ago

> that the purpose of building a business is just the exit The majority of those affected negatively by this are not the founders, but the employees. Many of them may have turned down FAANG positions that come with predictable liquid RSUs. Some may have kids (in fact, I know someone at Figma who had a kid in the past year). Liquidity's not necessarily about opportunistically passing on risk...sometimes it's just about making a competitive living relative to being at a public company.

EricDeb 3y ago
Any chance figma can go public?
- neom 3y ago
  I'm sure these 30+ people want their 330+ Million dollars back with "profit", they need to find an exit somewhere. https://www.figma.com/blog/figmas-series-e/ https://www.figma.com/blog/figmas-series-e/
  - EdwardDiego 3y ago
    Figmates... oh God.
    - deleted 3y ago
      [deleted]
    - deleted 3y ago
      [deleted]
- dolmen 3y ago
  Figma employees should instead ask for a share of the $1B break-up fees.
hn_throwaway_99 3y ago
I don't disagree with what you're saying, at all, but the implication is still basically "And employees want someone else to be a bag holder, too!" And having been in that position several times, I definitely don't blame them! Employees also have the much tougher constraints that they can't diversify their employment like VCs can diversify their investments. But still, it's the same dynamic that people want to get rich, and the downstream consequences be damned.
- amrocha 3y ago
  In practice, employee shares in a private company are not an "investment" because they can't be traded in an open market. So no, employees don't want someone else to hold the bag. Employees want a return on their investment, and the most viable way of doing that is through an exit.
  - hn_throwaway_99 3y ago
    That's the whole point though - employees want an exit event so they can sell their shares and have someone else holding the bag.
    - crandycodes 3y ago
      That seems like an odd way to frame it, imo. "Holding the bag" usually implies something negative, as in someone will be "caught" with something bad. As in the employees are looking to dupe someone into buying what they are selling. But employees, outside of company officers, do not control what information investors get about what they are buying. They can't trick anyone into buying something, although they could theoretically benefit if someone else did trick buyers. But it's a weird take, because employees are already the ones "holding the bag". Office space, cloud compute, etc. are all sold as COGS. VCs usually have some ability to sell their shares on the private market since they can negotiate to get their capital. Employees are often the only ones which are taking an IOU for their time and effort compared to what they could get elsewhere in the market. Employees are often the lowest class of shares which get paid out last and often reliant on the board to be able to sell on the private market. Yes, the employees decided to take this offer, on good faith, that their management would look after them. They are adults who made a, theoretically, informed decision. But structurally, they are set up to be the ones "holding the bag" if things were to go wrong with an exit. So of course they want an exit. They literally have no other choice to get a return on their time/effort than for that to happen. (or some odd third thing like private dividends, but again, they have practically no control over that happening)
amrocha 3y ago
What does it matter if Figma employees have kids? Having kids is one of the most common human experiences.
- deleted 3y ago
  [deleted]
kelnos 3y ago
And that's the risk/bargain those employees accepted when they took the job at Figma rather than some public company with predictable equity comp. Look, it sucks, I get that. I was an employee at a successful startup that did end up going public and made me a bunch of money. But I also worked at three other startups that didn't go anywhere and my options/stock ended up being worthless. I also worked at a "boring" public company with equity comp that amounted to a pretty small (but helpful!) quarterly bonus. I accepted each of those jobs knowing what I was getting into, and knowing that I probably wouldn't see any kind of big payday (the one where I did was life-changing, but if that hadn't happened, I'd still be fine, financially). That's the nature of the beast. It's disappointing when it doesn't work out, but don't play the "some of them have kids" card: people need to plan their finances based on normal, expected outcomes, not on the moonshot. And regardless, Figma still seems like a great company, with great products. Employees will still likely do really well, whether through a different acquisition or by going public. They'll just have to wait longer.
Drew_ 3y ago
> The majority of those affected negatively by this are not the founders, but the employees. Well yes there are typically many more employees than there are founders. Despite this, founders probably missed out on orders of magnitude more money than all of the employees combined.
kalleboo 3y ago
Most people who have kids make a fraction of the average salary at figma, I don't see how they are sacrificing anything
gherkinnn 3y ago
[flagged]

solatic 3y ago

> the original intention was to get access to public market funds to grow a business. Now it's usually just a method of "exit" to let retail investors take the lion's share of the risk Founders and employees would be totally OK with staying private, if the board would ever permit issuing a dividend. That's the "normal" way to have an "exit" (i.e. return profits to shareholders) without a public offering. The purpose of delaying issuing a dividend is to reinvest profits / additional fundraising for growth, but that growth should still result in a dividend in the future, just a larger one if the investment in growth succeeds. Instead, founders and employees are encouraged to look forward to an IPO precisely because somehow we've come to believe that it's sinful for a company to issue a dividend, as if doing so means giving up on the idea that further growth is possible, when really it's only an acknowledgement of the fact that (a) there's a healthy rate of growth, (b) that healthy rate of growth costs $X, (c) if the company has $Y cash >> $X growth cost, then the healthy thing to do is to issue a dividend (so that shareholders can invest the excess into companies that are currently better recipients), rather than attempting to force growth faster than the company can support.

TheNewsIsHere 3y ago
This is good analysis. As the owner of a business, I often find myself bewildered at the valuation-centric, IPO-gazing startup culture that has developed especially in tech. Most businesses in technology are nothing like the VC-funded, exit-oriented, and/or hyper-growth culture would have you think. Yet it seems like the glitz of a great IPO or being able to shell out for a $200 million annual corporate event blinds many to the reality of most businesses. I have wondered how much of this naïveté contributes to the failure rate of technology startups. I’m on my second business and I intend for it to be my last, though time will tell. The key thing I’ve learned is that hyper-growth, IPOs, and VCs aren’t really good for anyone other than the equity holders. Once you start selling ownership in your business, your customers are no longer your first North Star.
kelnos 3y ago
In the case where a private company has issued options or shares as a part of compensation, another way to pay back employees would be to do a stock buyback program. E.g. if I was an early employee and got options with a $1/share strike price, but the current going rate for new-employee options is $5/share, the company could offer to buy back my options from me at $4 each (or if I'd exercised those options, they could buy the shares back at the full $5 price). If the general understanding was that the founders (well, board) weren't chasing an acquisition or IPO, this might be a good deal for employees. Of course, if the company is VC-backed (and the founders don't have majority control anymore), the VCs probably wouldn't go for this sort of thing. I do actually wonder if the current trend of consolidation is driven in part by the standard VC-backed startup formula. Getting acquired is usually a lot easier than going public. Instead of startups fueling long-term competition, they just end up getting gobbled up by larger players most of the time, fueling consolidation and monopolistic behavior.

kpandit 3y ago

My favourite comment as well in this world so full of pump and dump shows. The mentality is so intrenched that if you are not one of these pump and dump shows with an exit strategy then you are labelled a lifestyle business instead of a proper "startup". [Off topic] That is some throwaway account with 60k+ karma and almost 7 years in age.

codeptualize 3y ago
There are lots of pump and dumps but this one isn't a pump and dump. Figma was founded in 2012, they pretty much took over UI design, did $400M ARR in 2022, great retention, rapid growth, great margins, there is a lots of actual value there and still quite a bit of potential left. A "proper" startup does indeed include an exit as that's the point where they give a return on investment to their VC's. That is the startup game, use the VC money to accelerate growth, then exit/go public. Not saying I like it, but once you take the VC money that is the game you play.
- kpandit 3y ago
  My bad. I was just responding to the parent comment and the comment(by showbug) they were replying to in isolation. Figma is a product I liked and was so terribly disappointed with the news of acquisition by adobe. Regarding startups, I just did google "define: startup" and in the dictionary definition there has no VC and no exit.
  - porridgeraisin 3y ago
    What the dictionary says is completely irrelevant.
  - codeptualize 3y ago
    We can debate definitions and labels but that's not really relevant to the discussion imo, name it whatever you want, what I'm referring to is a company taking VC money to accelerate growth. Once you take VC money, like Figma did, your goal is a lucrative exit. It's high risk, high reward. It's a different way to build a company, and it's not really possible to change that once you take that route. Doesn't mean you have to do this. I am all for building steady profitable private companies that aim for the long run, I think it's a great way to build great companies, but then you should stay far away from VC money, take a lot less risk, have different compensation strategies etc etc.

cco 3y ago

That's the intended outcome of the incentive structure of startup compensation. Sometimes more than half of your expected compensation at a startup is in equity upside, either from an IPO or acquisition. If that is to no longer be the expectation, then hiring at startups will be _much_ more challenging because startups cannot generally afford the salaries or benefits that larger companies can offer.

frozenport 3y ago
that is already the case, with unlimited equity you're basically working on the founders dream in exchange for dilution