This is a guest post by Richard Armstrong who is an early stage investor in many startups in both SE Asia and globally. Plus Richard has cofounded several companies.
Guest Author: Richard Armstrong
In 2022 the design world was rocked when it was announced that Adobe was going to acquire Figma for a whopping $20B.
Then more than 15 months later in December 2023 they announced that the deal was being terminated. Mainly because the European Commission and UK Competition and Markets Authority had blocked it.
Both Adobe and Figma publicly stated that they disagreed with the decision but felt it was in their best interest to move on.
So what does the falling though of the deal mean?
Basically it prevents a major consolidation in the design software market, thereby allowing smaller players a better chance of thriving. Since they won’t have a massive Figma-Adobe behemoth to deal with.
It also probably means that Adobe will need to up their game to prevent the eroding share of their once dominant products like Photoshop and Illustrator.
But hey… didn’t we think Microsoft Office would be disrupted and killed off? And yet Microsoft stock price is at an all time high. So Adobe needs to follow a similar path.
The fall of the deal also triggered lots of conversations in the VC world because it derailed what could have been a monumental payday for early investors.
Plus it also cast a shadow over the future landscape of mergers and acquisitions (M&A), especially those involving ‘decacorns’—companies valued at over ten billion dollars.
This, coupled with the scrutiny surrounding the Microsoft and Activision $69 billion deal, which narrowly avoided a similar fate, raises critical questions about the viability and strategic value of large-scale M&As in the current regulatory and economic environment.
The Changing Face of M&A
Historically, M&A activities have been seen as crucial mechanisms for companies seeking rapid growth, market expansion, diversification, or consolidation of their competitive positions.
For venture capitalists and early-stage investors, these deals are the pot of gold at the end of their rainbow of high-risk investments, often resulting in substantial returns.
However, the intervention by regulatory bodies, such as the UK’s move to block the Figma acquisition, underscores a growing trend of increased scrutiny and regulatory hurdles.
Will VC’s in the future look to exit earlier as a result of events like this?
Will they perhaps avoid certain types of big ticket deals because of the inability to be acquired?
The Rise of Smaller M&A Deals and Acquihires
In light of these challenges, I think the industry will pivot towards smaller M&A deals and acquihires. These transactions are less likely to attract regulatory intervention due to their limited impact on market competition.
Moreover, acquihires—a practice where a company is acquired primarily for its talent rather than its services or products—provide a cost-effective way for large corporations to absorb innovative teams and technologies without the complexities of a full-scale merger.
Companies like Microsoft, Google and Facebook have been famous for doing these types of acquihires for well over a decade now. But in the last few years I feel like these have become a bit less popular.
However I see a resurgence in these smaller deals. Because the larger ticket exit options are more limited. Either the company needs to IPO, which is a lot of effort and typically best done when it is already profitable, or the company needs to exit before it gets too big.
Some closing thoughts
I think it’s time for VC as an industry to reflect on the best path forward. I’m personally a fan of smaller funds that are focused on niches and add a lot of value to their founders.
And by being focused on these niches they thereby create success stories that are smaller in size and do not get too ‘big’ for their niche. Meaning they don’t achieve a market share that brings the watchful eye of regulators.
In any case it will be interesting to see as this evolves… will the big successful startups avoid these mega-deals and focus only on IPO’s?
Or will they brush this Figma-Adobe deal off… and keep attempting such types of deals?
