Understanding Figma and Adobe's $20B Breakup

What the failed merger means for venture & startups

Back in September 2022, the vc and startup community was abuzz with Adobe's announcement of its intent to acquire Figma for a healthy sum of $20 billion.

You should’ve seen VC twitter on this day — the threads were long and the hot-takes were flying.

This news came at an incredibly meaningful time when the M&A and IPO landscape was relatively barren for the prior months that saw a sharp decline of M&A and IPO activity. However, over the ensuing 15 months, the deal unfolded in a very public and somewhat dramatic manner, ultimately, collapsing under regulatory pressure.

Earlier this week, Adobe and Figma jointly announced the termination of their merger agreement. This move came in the wake of significant pushback from regulators in the UK and EU, who expressed concerns about Adobe's dominant position in the design software market. The regulators' apprehensions centered on the potential stifling of innovation that Figma, a rapidly growing design platform, could bring to the industry if allowed to operate independently.

Below, I’ll share some brief thoughts on this failed M&A and what it could potentially mean for VCs, startups, and all potential acquirers.

**As a reminder, opinions are my own and not the views of my employer.

Understanding the Landscape

Let's take a moment to understand the players here. Adobe, a legacy incumbent in the design software realm, eyed Figma, a transformative reframe of product design, for acquisition. The regulators' concern was that the acquisition might cement Adobe’s dominant position in the market and stifle the innovation that Figma represents. They saw it as Adobe trying to neutralize a competitor, which they argued would harm both other businesses and consumers by undermining fair competition.

The Competition and Markets Authority (CMA) offered Adobe a path forward to proceed with the merger, albeit a thorny one: either divest Figma Design, the core product driving Adobe's acquisition bid, or face a total block of the deal. The CMA’s ultimatum was direct and clear and it left Adobe with one question: should they proceed with the acquisition under these less than ideal conditions or abandon the merger?

Adobe balked at these proposals, unwilling to compromise on the terms laid out by the CMA. Can’t say I was surprised. Despite the deal collapsing, Figma is set to receive a $1 billion "break-up" fee. While this doesn't soften the blow of the failed merger, a billion dollar consolation prize will help absorb some tears I’m sure.

Figma’s Resiliency & Revenue Growth

For founders like Dylan Feld and the Figma team, this experience has probably been undoubtedly taxing. Imagine building a company for a 11 years, only to be caught in a prolonged regulatory limbo, threatening the completion of a lucrative acquisition. I’m sure the executive team and many early employees with stock were plotting on the new homes, cars, and luxuries they were ready to buy as soon as the ink dried. Equally, VCs were likely looking forward to sending their LPs emails about incoming distributions. It's a sobering reminder of the complexities and uncertainties inherent in navigating M&A.

Figma as a company has remained resilient through this all. They're on track to close the year with more than $600 million in annual recurring revenue, marking 40% year-over-year growth. In 2022, Figma doubled its revenue from the previous year, achieving $200 million in annual recurring revenue.

Avoiding Monopolies While Chasing Innovation

This deal was a classic catch-22: a clear victory for Figma’s creators, yet a source of unease for designers who depend on it. The broader regulatory “fear” isn’t just about Adobe slowing Figma’s momentum—it’s about what happens when innovation is consumed by incumbency. For many, the acquisition felt like a concession that startups, no matter how groundbreaking, may never fully escape the gravitational pull of legacy giants.

The deeper question is whether this trend signals a fundamental shift in the startup ecosystem. With IPOs increasingly rare and costly, acquisitions have become the default for scaling companies, even when that means trading long-term independence for short-term liquidity. The cycle feels inevitable now, but markets don’t stay static. There’s no doubt the IPO window will reopen—it always does—bringing with it opportunities for the next generation startups to carve out their own trajectories rather than primarily relying on incumbents for an exit.

In my opinion, what’s unfolding is more than a redefinition of exit strategies; it’s a reshaping of the incentives that drive startups/venture investment. IPOs reward scale, M&A rewards alignment with corporate strategy, and private equity offers a slower, steadier path. As an ecosystem, the choices we encourage today will determine the startup landscape of tomorrow—and whether it remains a source of transformative ideas or just a farm system for big tech.

Navigating Regulatory Red Tape in Sluggish M&A Markets

The fallout of this deal also highlights the growing influence of regulatory bodies, particularly in the EU and UK, and the constraints they impose on the tech ecosystems. As I reflect, one interesting question is whether companies might start challenging these hurdles more aggressively—not just through legal channels, but by taking bolder steps, such as withdrawing their products from markets that block their M&A ambitions. While this thought might seem drastic or even petty, it forces us to consider an uncomfortable reality and ask a thoughtful question: what happens when innovation is held hostage to regulatory agendas that vary widely across regions?

Pitchbook's data illuminates the scale of the Adobe-Figma deal.

Valued at $20 billion, this was a massive deal in the software M&A landscape, representing a significant chunk – a third, to be precise – of the total U.S. VC exit value in 2023, which speaks volumes about the rarity of M&A activity in the current market.

Thoughts on the Failed Merger’s Impact

The ripple effects of this failed deal are concerning. Limited Partners (LPs) are already grappling with extended capital lock-ups in funds. These funds are backing startups that are increasingly taking their time to reach an exit. Figma's own journey – from a $3.9 million seed round in 2013 to a Series E two years back – is a ticking clock. It's likely that some early investors cashed out portions of their shares via secondary sales. This scenario might leave many founders pondering whether an IPO is the only viable endgame left.

The deeper issue is how the venture model shapes the trajectory of a company from its earliest days. Once you take VC funding, you’ve committed to a specific kind of growth—fast, aggressive, and often inflexible—that might not be the best path for every business. Founders have to ask themselves not just whether they want to scale quickly, but whether they’re willing to trade long-term control and sustainability for short-term fuel. For some, the answer might be yes, but for others, it might mean rethinking the assumptions about what success looks like. In a world where alternative funding models are slowly gaining traction, the VC route is no longer the only option—and for some, it might not even be the best one.

As for Figma's future, it's a fascinating puzzle. If not Adobe, then who? Could another buyer step in with a strategic purchase offer? The likes of Google and Microsoft might face regulatory roadblocks similar to Adobe's. So, what's left? It seems Figma's most likely shot at a liquidation event now hinges on an IPO. And maybe that's not such a bad thing because they still have real advantages as a private company — a fundamentally sound business, customer evangelists, real value prop, strong retention, and continued growth.