Hey guys, welcome to the first episode of the uninvested podcast. My name is Crockett Callaway. I'm Sahil Seth
And today we're gonna be kicking off the inaugural episode of the podcast
Why and invested to be completely honest for two broke college students would have any money in the game
The only thing we have invested in the venture capital space is our own interest
And so every episode we're gonna be breaking down exciting things that are happening in the space
Really interesting investments that have recently happened and really just general venture capital and investing news
So what are we talking about today? So today we're gonna be talking about Adobe's acquisition of figma for those for those of you
That don't know Adobe is really just the grandfather of everything design, you know Photoshop
Lightroom all these applications and they just bought, you know
Possibly one of the heart with the hottest startups figma for 20 billion dollars and something really want to get in here is how can they
Justify this sticker price of 20 billion dollars. It's it's interesting, you know, we've seen before they have they raised nearly
300 and I think 38 million dollars in funding and to date the revenue is not at that
I mean they bought it for 20 billion dollars. What's the current revenue right now?
So they just doubled from 200 million to 400 million
So that's a 50x revenue multiple and for those of you that don't know what that means
Essentially, the sticker price is the revenues time some X amount in this case
It was 20 X which is a number that would be crazy even a year ago when venture capital was pouring all this money to startups
Even now when we've pumped the brakes during this like current recessionary environment that we're in
So I think to justify that 50x
Multiple we have to look at like what are Adobe's motivations in the first place, right?
Because like we have not seen the acquisition like this and by the way that
Hasn't gone through yet like the FTC saw us to check it out
That's it. That's something we'll get to later in the podcast as well. But what are Adobe's motivations behind this?
You know Adobe is a legacy company. Like I said, you know, some could say they're failing
You know the age of having you know, this suite of applications is really not something anyone wants anymore
Everyone wants a one platform business and they saw figmas really their number one competitor in the space
You know, they're really fast growing the year-over-year growth is insane
Like we said, they still were able to manage doubling revenues from a staggering number of 200 million to 400 million
So we want to think about do you think this is a really a defensive move or why other motivations that they'll be half of this?
so I like think of is defensive and I think the biggest thing that jumps to mind is
Is when have people done things like this in the past and have those actions been defensive or offensive?
And so the first thing I think of is is Facebook buying whatsapp for example
So we see like 2008 whatsapp starts super small private messaging company
Obviously Facebook at that point had already like been up and coming and they're
Continuing to grow like insanely rapidly
But then somewhere around
2011 Facebook starts to notice what whatsapp is doing a little bit freaked out that it's just first and foremost like a social messaging platform
Right because Facebook was starting with messenger which they thought was gonna be the next thing
They end up buying in 2014 Facebook buys whatsapp
For at the time 19 billion dollars, which I did a little inflation adjustment. That's like a 23 billion dollars today. So even bigger
Than than the actual deal we're talking about today the figma acquisition
But at the time it was completely defensive like Facebook was saying at the time that the biggest threat to their growth
And their future product success, especially for messenger was whatsapp
And so, you know bought it out completely wiped it off the mark
I mean still exists in the market today, but like completely eliminated a competitive threat
And so I think today when we look at like what are Adobe's threats in this space their biggest threats are like these huge new
Right innovative game changers in the space and that's why designers love figma in the first place exactly
It's just that one clever platform, but just jumping what you're the point about Facebook
You know, they've been known to make these defensive maneuvers think about buying Instagram
But something I really want to think about is Facebook really didn't integrate whatsapp and she and they really kept them separate
You know, but I think Adobe's gonna take a different out here and they're really gonna like integrate fake
But there's not gonna still be you know figma by Adobe or maybe just thinking by itself
I would think they're gonna make it one cohesive platform, you know, unlike what Facebook is doing
They kind of like had this cannibalization of their same
Customers, you know, we have the young people going on Instagram old people still going on Facebook and really like no mix of the in-between here
So that's one of the words I have about you know
Adobe trying to keep figma separate is they're really gonna cannibalize their existing market rather than merging it
So, I mean when we talk about that existing market to like I think at the end of the day
The UI UX space is completely driven by designers. It's like a weird like cultish space a little bit
designers have these toolkits of like products they use their own product suite if you will and
They're like super culty about the things they like and they build these like online reddit communities behind what they like and they're actually a lot
Of people right now who are super unhappy with the deal from the designer end
There are massive communities of designers who are kind of outraged at what's happening because they've seen before previous acquisitions of
Smaller UI startups and UI integrations where their integrations and they're really their innovation just halts once they get once they get acquired
Do you think like what Adobe's gonna do right now is like because you mentioned they're gonna integrate them into their product suite
Do you think their ideas like keep building it or kind of just like fizzle it into what they have right now?
Yes, so my only thought is you know, I was reading on tech crunch
They had this really big idea that Adobe is essentially gonna go into figma
If you will set up a figma becoming, you know
Just another part of the creative cloud suite and I really think that's what's gonna happen that Adobe's gonna become figma
We have this one cohesive platform, you know, you're gonna be on Photoshop
I could be doing it right alongside you because that really is the future this collaborative natures of company going in the future
You know, we can't have this, you know one product here one product here
And then you'll combine them at the end who really need to be working on it
You know start to finish together to really understand the customer that aspect for these faster and faster iterations that you know
The current market landscape is calling for so your your idea right now is that right Adobe has bought let's say let's imagine like
Six months from now FTC puts a green stamp on this deal goes through right which by the way
I'd be like I would be I would say six months is like probably kind of
Like liberal with that like I think it's probably closer to a year until this goes through
Because by the way, like this is it's essentially monopolies what they're creating. Yeah, we can talk about that
You know these legacy companies buying sharks, but we'll pump the brakes on that for now
We'll put the brakes for a second. So my idea let's say imagine they put a green stamp on the deal. Yeah
Next year a year from now is you log on to Adobe comm and when you go to your manager subscriptions on their creative cloud
Which is just their suite of platforms
Do you have access to buy Adobe Figma or when you log on to figures website just as figma by Adobe like who's retaining?
Kind of a larger brand image and ownership here. I think it has to be Adobe
They're not really going for a complete rebrand. I want to say like into figma
They don't want to steal essentially figmas thunder and say oh, we are now figma figmas our competitor
That's really kind of like submitting to them rather than they're gonna take the best
aspects of figma and kind of use it to
Refuel Adobe in that nature really try to take over figmas growth for themselves and like
Reestablish themselves as this number one player, you know going into the future
Mm-hmm. See, I mean my idea though there is that I think the most important thing to like when we talk about like who's retaining
brand ownership, right I
Think we have to go back to my earlier point is designers in the first place, right?
Because designers biggest thing is that they're afraid that they're gonna go log on to figma comm
It's gonna redirect them to this like old grandfather legacy product like Adobe XD
That now just has little snippets of what they liked from the past
But the end of the day people jump onto figma and I think this is something that hopefully we'll discuss in future
Podcasts people jumped on it because it was just an insane amount of innovation happening really quickly
I mean figma is a it's a sub 10 year old startup, right and and they've done more stuff, you know native real-time
like collaborative editing
You know prototyping and stitching between the UI to UX landscape
They've done stuff that like hasn't been available before and I think people's fear is that look we invested our time our efforts
companies have invested enterprise level subscriptions into figma and
Now figma is just gonna revert back to what people stopped using ten years ago
I think that's their fear here, but I could be totally wrong
So you're kind of thinking like figma is gonna like fade away into the fold that is the greater, you know
Adobe what it is
That's my fear here
And I think look if we talk if we go back to what we just talked about about being a defensive maneuver
I think really defensive maneuver right like they're eliminating their competition
But I think when we look at it from the consumers perspective, it might not be in their best interest
I think there's that there's this real fear here that you know, they're gonna be completely stalled
I
Don't know my thoughts are really that you know, like you were saying you're gonna type in figma.com
That's gonna be saving is typing adobe.com. It's gonna be you a one application. Maybe just even one online platform
I know it's gonna take a lot of infrastructure to really take all those separate applications like like we talked about Photoshop
Adobe XD and bring them all into one like application, but that is really what I think Adobe needs going in the future
You know you're not gonna be able to pick and choose which different
Sweets you want maybe that will based on like their different subscription models
They have like you have access to all of these or you have access, you know only two of the products
But I do think it's gonna be one interactive platform now going forward instead of like multiple separate platforms
I will say though recent quote from Dylan Field who's the co-founder
original co-founder of
Figma and still continues on he recently said Adobe is deeply committed to keeping figma operating
autonomously and I will continue to serve as CEO and so I think this is kind of
Insighting that they want them to remain completely separate
I think that like there's probably a fear on his end that that joining them a little bit more like they know who their competitor
Yes, they know that their main competitor is someone who people view is very old
and so I think like I
Actually kind of disagree. I think that way
Although what I'd like to think is Adobe's gonna swallow them up
Like I think there's gonna be real pressure and this is probably part of the deal in the first place
Yeah, I find it very interesting because you know Adobe did I believe they bought Figma with half a stock essentially when Adobe was in the
Attempt of buying back shop really doing like a reverse maneuver to buy it by thing
So I wonder if like that was part of like the stipulations how you know figma
They want some stake in Adobe rather than just like becoming Adobe itself
Which is interesting though because I don't know because I now you're talking about like keeping them autonomous
I feel like they're really just gonna cannibalize their own market like Adobe customers are just gonna become
figma customers
Essentially, I mean from that perspective like do you think it's gonna be like they're forced to almost like they have they have no real choice
In this matter, they just get introduced to this new figma
I don't like Adobe figma is maybe the new service will pioneer like they just get introduced and they're forced to do that
Or do you think they're actually really gonna lose that market?
I think they will lose that market because this ties back to you know, like that Facebook Instagram thing
Facebook really did lose that market, you know, we can see Facebook is going through their own terminal right now
You know, they've tried other rebrands with meta metaverse not panning out
Maybe they will in the future
But my fear is that this is really just like a Facebook Instagram parallel where this giant legacy company Adobe
You know, they bought this very hot up-and-coming
startup now like high growth company and you know
They're just competing for the same markets in that aspect but so what I look at is a little bit different, too
So when we think about them losing this massive market just because of you know, the sticker price in their previous market share
Let's go back to that. Let's look at when Facebook bought Instagram, right?
Yeah, one of the reasons they bought Instagram is because the demographic for Instagram was way younger than Facebook
It's true and they didn't want to lose out on that market now figma
At the time of the purchase had 77% of the market and so you could say they were already a monopolist
On this market. Yeah, Adobe who was kind of like poor shriveling out like disheveled who's by the way
They're their stock sticker price was in the down down 46% I think over the year something like that
This was completely like look we have way more money than you but you are on a way better trajectory than us
And so I think it's like and in this case and this is my larger point when Facebook bought Instagram
Even though they had this dominance over the market
I don't think they lost much of their consumer base consumers were kind of fine that like that remaining with existing
Consumer base will stay the same for Adobe, you know, the Adobe's not gonna lose to figma
But I'm saying what about the new people, you know, like we just made our logo off of figma for free
Like you're not gonna go use Adobe. Yeah, you're gonna stay with figma. How can Adobe compete to get new customers then?
How can they compete to get well, okay, let's let's take it like one by one
So there's the question how can they compete to get new customers?
But then how can they retain their own customers and kind of like avoid churn, right?
And so I think when it's retaining customers, it's just they have to remain they kind of like garner that loyalty
Just by continuing the path of innovation like being very transparent a quote like that from Dillon Field about
Her remaining on a CEO. I think it's like really important
Yeah, especially for this huge very like invested consumer base in the design industry where people are like
Constantly obsessed with what they're they're working on. But when we look at like gathering new consumers, I don't know
I think it's like I wonder if they're gonna continue to be an industry cannibal and just go after
All of these startups that we see today are already integrating with figma. Yeah, I wonder how that's gonna change those integrations in the first place
I think
Sahil and I were chatting about this when the deal initially happened. There are
Hundreds of startups now whose entire existence is dependent upon figma, right?
Like they exist so that UI designers can just pull them into the toolkit and integrate them
I mean, do you think they're gonna lose all those as well or like I
Don't know. It's just a question. Let's see in the future
I think they will lose in the at the end of the game
They're gonna pour all their money into figma
But I sort of know going back to our first point of you know a 50x revenue multiple if we're not seeing like
Adobe's core business itself getting any increase in revenue rather than just you know taking on figmas rent revenue
I think maybe an interesting
Note on that topic is because I feel like at this point right like we could we could pick this apart all day
But I think something that's really interesting here is when you're in a position like Adobe was where you are
Although you have a ton of capital
Your shareholder support is tanking your stocks are down people are not using your services figma owns
77% of the design market meanwhile Adobe's been pumping
Millions into Adobe XD and Photoshop and Lightroom over the last 15 years
In general, what are your options as as a company because they chose to make a maneuver, right?
We're gonna buy out this company exactly. There's also the you know, you could you could pivot to a different product
You could go target another consumer segment like what are your options? Like how do you weigh your options in that position?
Exactly. I think this makes like a good segue to our next point about you know
legacy companies going out and buying startups like should this deal even go through it really sets a
precedent that you know these legacy companies they have all this money billions of dollars can they just
Swallow up starts and no one can really compete anymore
Like do we think legacy companies should be allowed to buy startups, you know up-and-coming high growth companies
Like Adobe bought figma, but does this really kill innovation? Do we think or does it bolstered in fact by having these capital injections?
Well, look I think at the end of the day companies are allowed to do whatever they want, right?
Like that's part of the beauty of operating in a free market. I think to
By the way, like with the regulation of the FTC to make sure that you're not completely running out of the competition
I don't know to be completely honest. Like I don't know what the FTC specific regulations are
You know if they let Facebook buy a whatsapp which has been heavily contested and many people think it was a horrible decision
Especially given in the last two years all the controversy we've seen over social media gathering people's information
I don't know. I assume like I assume the deal will go through otherwise they'll be like insane scrutiny
But maybe there should be like more of a specific metric right like if your market share is over
X amount like you should not be able to buy a company that is x amount close to what you do
I don't know. I think at the end of the day like they're completely allowed to do it
Someone made a smart decision on Adobe's behalf whether or not you think that they're like completely erasing the competition or they're harming
Figma fans out there and like stalling the design industry. They made a smart business decision
So I don't I mean do you feel that like there should be tighter regulations on it?
No, I think the deal should be allowed to go through my only worry is you know, if I'm a startup
I have a great idea
How am I gonna compete against Figma now like you were already unable to compete against them?
Like I said seventy percent seventy seven percent of the market now. They're backed by this billion dollar public corporation
They could just do it
You know Facebook does someone comes along or like take that does someone comes along with the great idea like be real did
You know, you just make it internally now
And you just put it on your own platform. It's like an extra feature
So like I just wear that this could like pause innovation like you're saying in the design space
Like obviously Figma will keep you know progressing and innovating themselves
But I think the greatest innovation comes from the pressure of your competition
And you can see what everyone else is doing and finding new ways to beat out competition
But if you can just build something internally, how can you really compete against that?
Yeah, it's there's a gradient of competition right like like minor or like mediary competition that helps thrive innovation like yours
Or how spur innovation and you're talking about but when the competition owns a hundred percent of the market like it's not a company
It's a brick wall. That's not competition. Um, my question for you though is
What do you think canvas response is gonna be now?
I don't know camera, you know, I don't you guys have seen they recently released a new work speed
They're kind of competing with Google's works workshop in this suite in this case, but I don't know what they're gonna do
I think they might you know pivot into their own niche a little bit be more for like the beginners
They might say, you know with their templated versions rather than figmas for for the advanced
So kind of catering towards people, you know that are beginning
But I wonder how they can hold on to those people because once you can become more advanced UI UX design
Like you eventually go to figment, but just because it's a more powerful program
So what are your thoughts like how can canva really keep on to their customers?
Look, I think canvas like quaking right now. Yeah, I think they're absolutely terrified if I'm if I'm the canvas co-founders
I mean, you're probably in talks with the FTC trying to like lobby this not to go through
Yeah, you're probably talks with execs at figma
I think I think their biggest thing right now is canva attracts much more of a beginner market. I think
You mentioned it before and I think you said figma like our logo straight from camera, right?
And like what the fuck do we know and I think for figma like you have to be more of like an intermediate or experienced designer
And so maybe that's a market that they're gonna really try and dive after like
I have this background fear that now this adobe figma carnivore is going to double up canva
Oh god, but then I don't then like how do you like where's your attention coming from?
Like what is stopping someone, you know for building the skills on canva and not just like and then just leaving canva
How do you incentivize people to stay? I don't know. I don't know the answer
Yeah, I mean, I think that's something that we're gonna have to leave to discuss further in the next episode
But I'm Crockett Callaway. I'm Sahil Seth and this is uninvested