The $20 Billion Acquisition of Figma by Adobe: A Deep Dive
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Chapter 1: Understanding the Valuation of Figma
Valuing a company can often resemble an art form rather than a precise science. A striking example of this is Figma's acquisition by Adobe, which was estimated at nearly 250 times its revenue. In 2021, Figma successfully raised $200 million in a Series E funding round, achieving a valuation of $10 billion. Although Figma does not publicly disclose its revenue figures, estimates can be made based on its user base, which relies on a recurring revenue model. Some analysts might suggest that a $10 billion valuation corresponds to revenues between $50 million and $80 million, depending on the source. This can leave observers stunned at the price tag. However, those who invested during that funding round saw their investments double within a year.
Determining valuations can be tricky. For instance, the difference between investing in a company valued at $10 million versus one at $20 million becomes negligible when contemplating a $20 billion exit. Forbes reported that Figma's revenue was $75 million in 2020 and projected to reach $200 million in 2022, with estimates of hitting $400 million by 2023. This would translate to a valuation of approximately 50 times its revenue post-acquisition. Regardless, paying a premium of 50 times revenue for a company of this size is significant, particularly as Figma no longer fits the typical 'startup' mold.
According to various estimates, Figma's revenue in 2022 was around $81 million, which would put the premium at 250 times revenue. However, for investors, the substantial returns make the premium less critical.
Here’s a thought experiment: if you invested in Figma's Series A round, your investment would likely be worth millions today, reflecting returns of up to 500 times. This scenario, while exceptional, provides insights into the valuation process. If you're considering a company with no revenue and a $10 million valuation, the investment's potential worth can be uncertain. The firm might fail, but if it turns into a billion-dollar success, the valuation becomes irrelevant.
The rationale behind Adobe's acquisition of Figma is clear: every dollar Figma earns represents a loss for Adobe. From its inception, Figma has positioned itself as a competitor to Adobe, and this acquisition reflects that competition. Should Figma achieve $400 million in revenue in 2023, followed by a billion by 2025, Adobe would effectively reclaim $2 billion in revenue over three years.
Section 1.1: Evaluating Future Value
When assessing "future value," one approach is to compare the startup's valuation against industry revenue multiples. Adobe, at its peak, was valued over $300 billion with revenues of $16 billion, leading to a revenue multiple of roughly 19 times, though this has since dropped closer to 10 times. This context complicates the evaluation of Figma, which was acquired for more than 100 times its revenue. Still, it indicates that companies within this sector are valued in the hundreds of billions and may justify higher revenue multiples, suggesting potential long-term gains.
It's important to recognize that this case is somewhat unique. Adobe was losing significant market share to Figma, making the acquisition a strategic move to mitigate future losses. The decision to purchase was a proactive measure rather than a reactive one.
Section 1.2: The Art of Valuation
This acquisition serves as an exemplary case of how valuations can lean more toward art than science. Most investors in Figma were betting on this outcome. If one were to evaluate solely based on revenue multiples or other standard metrics, the acquisition price might seem outrageous. However, acknowledging Figma's potential threat to Adobe provides context for the premium paid. This could position Figma as a competitor capable of achieving a valuation exceeding $100 billion in the future, or it could signify a strategic acquisition at a high cost.
Of course, such valuations should not be seen as the norm. A thorough analysis of potential upside relative to a company's current valuation remains crucial. If multiple companies in the industry exceed $100 billion in value, a $10 billion valuation for a similar company might still be considered a bargain.
Chapter 2: Video Insights on the Acquisition
In this section, we'll explore two informative videos that delve deeper into Adobe's acquisition of Figma.
The first video, "Why did Adobe spend 20 BILLION DOLLARS for Figma???", provides a comprehensive analysis of the reasons behind this significant acquisition.
The second video, "Adobe Buys FIGMA ($20 Billion) - Everything you need to know," summarizes the key aspects and implications of this monumental deal.
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