The breakdown of Adobe’s attempt to acquire Figma, a collaboration-software startup, for approximately $20 billion due to resistance from regulators in the U.K. and Europe may cast a shadow over venture capital. The current state of the startup ecosystem, influenced by higher interest rates, has already dampened activity at both ends—limiting private funding for early-stage startups and impeding late-stage startups from going public through initial public offerings. The unraveling of the Figma deal underscores the growing challenges that startups may encounter in pursuing acquisition by another company.
Nathan Lindfors, the policy director at Engine, a nonprofit advocating for startups, views this development as a negative impact on venture investing and startup formation. He suggests that if the deal had gone through, it would have stimulated more venture-capital activity and infused additional capital into Figma, potentially fostering new entrepreneurial ventures.
Lindfors emphasizes the importance of acquisitions in the startup ecosystem, particularly outside major hubs like Silicon Valley and New York, where initial public offerings are more viable. The termination of Adobe’s planned acquisition of Figma follows a warning from a U.K. regulator about potential harm to innovation, leading to the mutual decision to terminate the deal. The termination agreement includes a $1 billion fee that Adobe is obligated to pay Figma.
The deal, announced in September 2022, highlighted the increasing demand for technology tools facilitating remote collaboration. Figma’s features, such as interactive virtual whiteboards and design prototyping, play a crucial role in collaborative processes, especially in areas like software development.
The tough regulatory environment for major tech deals, while intended to safeguard innovation, raises concerns among analysts. Some argue that regulatory measures may inadvertently stifle innovation and investment across sectors by limiting exit opportunities for startups, leading investors to adopt a more cautious approach to mergers and acquisitions.
Despite the challenges posed by regulatory oversight, Lane Bess, CEO of cybersecurity startup Deep Instinct, believes that innovation will persist. He acknowledges the hurdles in the EU regulatory landscape but suggests that regulatory factors may influence a company’s trajectory toward public markets or merger scenarios without completely stifling innovation.
