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I think this is great. Figma gets a free undiluted infusion of 1B cash. I’m surprised break-up fees aren’t negotiated as an investment instead of a pure cash tr

I think this is great. Figma gets a free undiluted infusion of 1B cash. I’m surprised break-up fees aren’t negotiated as an investment instead of a pure cash transfer. Sure it may have impacted company focus, it didn’t impact their revenue that much (1.5x growth vs 2x growth in previous years although that could have also been caused by an adverse economic climate with sales slowing across many companies and industries). The one-time 1B infusion puts their revenue growth quite a bit higher for 2023 than they would have had organically I suspect (4x growth vs best case of 2x). If Figma fixes their sales trajectory in 2024 this bodes extremely well for them. They do need to have a better story about generative AI which is a real thing in their space (e.g. wireframe -> mockup automatic conversion, wireframe construction assistants, etc etc). Will be interesting to see if they build that in-house or via acquisition.

gkoberger 3y ago
It could be negotiated as an investment, but that only benefits Adobe. Figma wouldn't want it (would you want your biggest competitor to be an investor? they'd have information and leverage you wouldn't want them to have), and it defeats the purpose of a break-up fee (Figma negotiated for it because they didn't want to spend a year of their lives focusing on something that would benefit their competitor if it's all for nothing... Adobe gained a year, has a ton of information, and distracted Figma).
- theultdev 3y ago
  And in reality, Adobe actually lost progress on XD and Figma has come out with an incredible amount of features this year. Now Figma has an extra billion for development and Adobe has to start back up the thing they couldn't catch Figma with in the first place. It was pretty much a win/win for Figma regardless of outcome. Though this outcome is a win for Figma and it's users.
  - matwood 3y ago
    > And in reality, Adobe actually lost progress on XD and Figma has come out with an incredible amount of features this year. Features and free advertising. Many people knew of Figma, but now everyone knows of Figma. It's the tool that was good enough to scare Adobe into paying 20B and stopped by regulators.
- vlovich123 3y ago
  Being an investor doesn’t necessarily entitle you to information/leverage. For example, Apple earlier had plenty of board members from competitors & they would excuse themselves from certain discussions. Similarly, an investment doesn’t guarantee you a board seat. So there’s all sorts of ways to structure things and it’s all a negotiation (e.g. the break up fee could have been a 2B investment instead or something). Anyway, I agree this turned out phenomenally well for Figma and if I were an employee I’d be really happy about how this all turned out both for Figma and the industry (modulo the delay in cashing out).
  - invig 3y ago
    As a conflicted board member you would have access to the information, you just wouldn't participate in the conversation / decision making.
kinnth 3y ago
I 100% agree. That space needs competition and alternatives to the Adobe monopoly.
mathattack 3y ago
Making it an investment could be tripped up by whatever might trip up a merger. It’s also more difficult to value the investment. (How much equity should they give up? Same valuation as the implied purchase?)
- vlovich123 3y ago
  Maybe? I haven’t heard of any regulatory oversight of investments, only mergers. Do you have any links I can read up more on this? As for valuation, same as valuations a purchase or how they get valued whenever there’s a round of investment (basically you do a sophisticated argument over value using comparables as a way to try to establish a baseline). The equity purchased would equal how much cash gets infused vs the valuation established by the deal.
015a 3y ago
Fun fact: Figma's ARR in 2022 was around $400M. That $1B cash infusion could be invested in treasuries with an ARR of ~$50M; this isn't just a liquidity infusion of a billion dollars, it increases their net income by like 10%, basically free of charge.
- hn_throwaway_99 3y ago
  You're confusing revenue with net income. Plus, if the best that Figma can do with a billion dollars is just invest it in Treasuries (and I'm not saying that's the case), then they should just give it to their shareholders and see if they can get a better return. I only point this out because many people are often confused by the effects of higher interest rates, e.g. "Why did this company lay off all these people when they're still profitable?" Your example highlights the reason why perfectly - if you're a company with a billion dollars of investment and the best profit you can muster is $50 million a year, you're a great business if Treasuries are only paying 1%, but when they're paying 5% you should just basically close up shop as people can get the same return just sticking their money in Treasuries.
  - habitue 3y ago
    I think they're saying net income because they're assuming there wasn't any cost for it. But they do have to pay taxes on it, and the lawyers and executives time spent on trying to make the deal work did cost something. Probably much higher margin work than their core business though. If only you could repeatedly negotiate and then recover breakup fees as a business..
    - hn_throwaway_99 3y ago
      > I think they're saying net income because they're assuming there wasn't any cost for it. The issue is that they conflated ARR, which obviously does have a cost, with the largely "free money" from their breakup fee.
  - kuldeepfouzdar 3y ago
    Point is adding $1B on the balance sheet is definitely a plus. How figma uses it is up to them. But yes, companies don't use all the cash right away and do put some of it into short term investments.
paulddraper 3y ago
> I’m surprised break-up fees aren’t negotiated as an investment That would be very awkward (and even dangerous) to have a competitor as an investor.
- drexlspivey 3y ago
  As opposed to them buying 100% of the company?
  - paulddraper 3y ago
    Correct
    - quickthrower2 3y ago
      Yep. To oversimplify it, you don’t need to change the oil on your previous car. Not your problem anymore.
gedy 3y ago
Very true, but it's interesting the Figma CEO sounds disappointed, which feels like the game plan has been to be acquired and pay investors. Adobe is the biggest player in the space, so if denied, might put a damper on future acquisition price.
- vlovich123 3y ago
  I mean it’s a massive exit missed for him and he has to now gamble with more fickle public markets in an adverse environment. I’d be bummed too in his shoes because it means I’d have to keep working hard with a continued risk after already taking such a massive risk.

gkoberger 3y ago

It could be negotiated as an investment, but that only benefits Adobe. Figma wouldn't want it (would you want your biggest competitor to be an investor? they'd have information and leverage you wouldn't want them to have), and it defeats the purpose of a break-up fee (Figma negotiated for it because they didn't want to spend a year of their lives focusing on something that would benefit their competitor if it's all for nothing... Adobe gained a year, has a ton of information, and distracted Figma).

theultdev 3y ago
And in reality, Adobe actually lost progress on XD and Figma has come out with an incredible amount of features this year. Now Figma has an extra billion for development and Adobe has to start back up the thing they couldn't catch Figma with in the first place. It was pretty much a win/win for Figma regardless of outcome. Though this outcome is a win for Figma and it's users.
- matwood 3y ago
  > And in reality, Adobe actually lost progress on XD and Figma has come out with an incredible amount of features this year. Features and free advertising. Many people knew of Figma, but now everyone knows of Figma. It's the tool that was good enough to scare Adobe into paying 20B and stopped by regulators.
vlovich123 3y ago
Being an investor doesn’t necessarily entitle you to information/leverage. For example, Apple earlier had plenty of board members from competitors & they would excuse themselves from certain discussions. Similarly, an investment doesn’t guarantee you a board seat. So there’s all sorts of ways to structure things and it’s all a negotiation (e.g. the break up fee could have been a 2B investment instead or something). Anyway, I agree this turned out phenomenally well for Figma and if I were an employee I’d be really happy about how this all turned out both for Figma and the industry (modulo the delay in cashing out).
- invig 3y ago
  As a conflicted board member you would have access to the information, you just wouldn't participate in the conversation / decision making.

kinnth 3y ago

I 100% agree. That space needs competition and alternatives to the Adobe monopoly.

mathattack 3y ago

Making it an investment could be tripped up by whatever might trip up a merger. It’s also more difficult to value the investment. (How much equity should they give up? Same valuation as the implied purchase?)

vlovich123 3y ago
Maybe? I haven’t heard of any regulatory oversight of investments, only mergers. Do you have any links I can read up more on this? As for valuation, same as valuations a purchase or how they get valued whenever there’s a round of investment (basically you do a sophisticated argument over value using comparables as a way to try to establish a baseline). The equity purchased would equal how much cash gets infused vs the valuation established by the deal.

015a 3y ago

Fun fact: Figma's ARR in 2022 was around $400M. That $1B cash infusion could be invested in treasuries with an ARR of ~$50M; this isn't just a liquidity infusion of a billion dollars, it increases their net income by like 10%, basically free of charge.

hn_throwaway_99 3y ago
You're confusing revenue with net income. Plus, if the best that Figma can do with a billion dollars is just invest it in Treasuries (and I'm not saying that's the case), then they should just give it to their shareholders and see if they can get a better return. I only point this out because many people are often confused by the effects of higher interest rates, e.g. "Why did this company lay off all these people when they're still profitable?" Your example highlights the reason why perfectly - if you're a company with a billion dollars of investment and the best profit you can muster is $50 million a year, you're a great business if Treasuries are only paying 1%, but when they're paying 5% you should just basically close up shop as people can get the same return just sticking their money in Treasuries.
- habitue 3y ago
  I think they're saying net income because they're assuming there wasn't any cost for it. But they do have to pay taxes on it, and the lawyers and executives time spent on trying to make the deal work did cost something. Probably much higher margin work than their core business though. If only you could repeatedly negotiate and then recover breakup fees as a business..
  - hn_throwaway_99 3y ago
    > I think they're saying net income because they're assuming there wasn't any cost for it. The issue is that they conflated ARR, which obviously does have a cost, with the largely "free money" from their breakup fee.
- kuldeepfouzdar 3y ago
  Point is adding $1B on the balance sheet is definitely a plus. How figma uses it is up to them. But yes, companies don't use all the cash right away and do put some of it into short term investments.

paulddraper 3y ago

> I’m surprised break-up fees aren’t negotiated as an investment That would be very awkward (and even dangerous) to have a competitor as an investor.

drexlspivey 3y ago
As opposed to them buying 100% of the company?
- paulddraper 3y ago
  Correct
  - quickthrower2 3y ago
    Yep. To oversimplify it, you don’t need to change the oil on your previous car. Not your problem anymore.

gedy 3y ago

Very true, but it's interesting the Figma CEO sounds disappointed, which feels like the game plan has been to be acquired and pay investors. Adobe is the biggest player in the space, so if denied, might put a damper on future acquisition price.

vlovich123 3y ago
I mean it’s a massive exit missed for him and he has to now gamble with more fickle public markets in an adverse environment. I’d be bummed too in his shoes because it means I’d have to keep working hard with a continued risk after already taking such a massive risk.