Brace up for the biggest acquisition of a VC-backed company in a long while. Adobe (NASDAQ: ADBE), the creative design software giant, has struck a deal to buy Figma, a trendy collaborative design tool.

• Adobe will pay a whopping $20bn for Figma, half in cash and half in shares. It’ll also grant 6 million additional restricted stock units to Figma’s CEO and employees that’ll vest over four years after the deal’s closing.

This deal will see Adobe absorb one of its biggest rivals in the digital design software field. Since its first public release in 2016, Figma has speedily garnered a loyal user base and eaten into Adobe’s market share. It represented the underdog challenging the incumbent in the design software sector, up until now, where it appears that selling to the incumbent may just be the most lucrative path for a challenger to take.

At $20bn, this deal represents the biggest acquisition of a VC-backed startup in two decades. It beat the previous record holder, WhatsApp, which Facebook (now Meta) acquired for $16bn upfront in 2014.

• It seems Adobe investors think the company is overpaying for Figma. Adobe’s stock dipped 17% following the deal’s announcement on Thursday, wiping $29 billion off its market value, or $9bn more than it agreed to pay for Figma. Yet, it’s noteworthy that Adobe released its quarterly results that fell shy of analyst expectations on the same day, contributing to the dip.

Figma Inc, the company, was founded in 2012 but didn’t release its eponymous design tool to the public until 2016. The platform allows users to create designs for mobile and web interfaces and share them with other designers for viewing or collaborative editing. It’s a freemium tool– free to use but requiring subscriptions for advanced features.

With millions of users, Adobe says it expects Figma to surpass $400mn in annual recurring revenue (ARR) at the end of this year. That’ll imply Adobe paying 50x sales for Figma, which is a pretty high multiple but not unheard of in software deals– the cost may be well worth it for buying your most formidable challenger.

• Figma has raised roughly $330mn in funding from VCs, including a $200mn round that valued it at $10bn last year. Major shareholders that stand to win big from Figma’s sale include blue chip VC firms Index Ventures, Greylock, and Andreessen Horowitz. The startup’s two co-founders, Dylan Field and Evan Wallace, also stand to earn big sums.

• Adobe says Figma’s CEO, Dylan Field, will remain in his leadership position upon closing the acquisition but will report to David Wadhwani, an Adobe Executive Vice President.

If all goes as planned, the acquisition will close in 2023. However, don’t count out antitrust scrutiny that may delay or thwart the deal, especially in a hostile regulatory climate under the current leadership of the U.S. Federal Trade Commission (FTC). If things go south, Adobe has agreed to pay a $1bn termination fee to Figma.

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