Figma's 50x ARR M&A Multiple & What it Means for Startup Fundraising
Today, Adobe announced its intention to acquire Figma for $20b, valuing the business at 50x current ARR, the highest multiple paid for any software company of scale. Congratulations to team Figma on building their impressive business.
After the correction earlier this year, public valuation multiples had reset to those of 2017. That year, Cisco acquired AppDynamics for 17x trailing revenue. If we assume a company recognizes about 2/3 of its ARR as revenue, then I estimate the Adobe/Figma deal at roughly 75x trailing revenue.
That’s not a bear market multiple. Doubly true when the median public company today is trading at 6.3x.
Not too long before the public market correction, high-growth startups routinely commanded 100x ARR multiples. If an acquirer is willing to pay 50x, shouldn’t a VC be ready to buy shares at 100x at a much earlier stage? Doesn’t this acquisition reset the market price despite this year’s 70% correction?
The answer is likely not. While Adobe’s acquisition may set a high-water mark, it’s a single transaction. The environment hasn’t changed much.
Before this announcement, US venture-backed software M&A was tracking to its worst year since 2017, at about $7b, down from $71b last year.
Public company multiples have floundered around 5-6x as a result of macroeconomic uncertainty. This week’s high inflation print damped recent public rallies.
When modeling investment cases, VCs often use a basket of comparables - not a single transaction - to justify prices, even if that single transaction is a firecracker that lights up the entire night sky.
Director of AI for Security, Risk & Fraud Prevention | Building AI Platforms | On a break
2 年If you build a model based on comparables, you'll do well to throw out the outliers, which will take care of this deal for sure
Chief Executive @ CXOsync | Empowering Collaboration and Connection for Business Leaders through Innovation.
2 年Only if you intend to sell to companies that still have rich valuations and very strong balance sheets. They have to need the acquisition a lot. Figma cut into their business.
Building AI-powered robots to increase recycling.
2 年“When modeling investment cases, VCs often use a basket of comparables - not a single transaction - to justify prices, even if that single transaction is a firecracker that lights up the entire night sky.” Fine, put this one in your basket ?? It is a great reminder for companies with healthy margins that they should not do anything radical while investors and acquirers are talking this way. If general market conditions are used as an argument to bargain it means the deal is too generic and lacks synergy.
Enablement Director @ SecurityScorecard | Google PM Certified | UPenn Private Equity program
2 年????????