TIVP063: Figma Inc. (FIG): Recovering From An 80% Post-IPO Decline w/ Shawn O’Malley & Daniel Mahncke

17:57Daniel Mahncke:No one is coming to save us with a big payday. And so there's still a lot of work left to be done. And there's this really great quote from Dylan Field reflecting on the Adobe deal. And he goes, quote, at the start, it was kind of like, oh, 95 % it'll go through. No worries. But every time we checked in, the certainty of the deal went down. Eventually at the end, it was maybe a 5 % chance that it would go through. And somewhere in that arc, we realized quickly, this is not a sure thing. Keep the foot on the gas. Keep building. That's the best outcome, whether we join Adobe or whether we're independent.

18:29Daniel Mahncke:it. You can't be in this constant state of we're so back and then it's so over rapidly cycling through that just makes your brain fall apart and turn to mush in my opinion. So the word of the year for me was equanimity. I think I said equanimity more times that year than I ever will for the rest of my life. It's just how do you find peace in every option and know that everything's going to be okay. We're building a great company for amazing customers and we have a lot of stuff to do. Let's go do it. And so, yeah, that was quoting Dylan Field. And the irony is that previously, Figma had only ever raised in the neighborhood of$300 million from outside investors.

19:09Daniel Mahncke:So when Adobe suddenly pays them a$1 billion breakup fee just for the deal getting blocked by regulators, that was three times as much cash at once coming in the door as the business had ever received from previous fundraising in total. And for that massive influx of cash, Adobe shareholders received nothing, nada. Not a single share of equity once regulators intervened. And so it was effectively a charitable donation to one of their most promising emerging competitors. And you can imagine from Figma's perspective, they're thinking, holy cow, we have all this cash now. We've really got to start building and ramping up.

19:48Shawn O’Malley:I'm honestly not sure though, whether I find it good that they wanted to sell the company or if I wanted a more, I don't know, enthusiastic founder who wanted to build this company themselves and not just hope for a big payday selling to Adobe. But I think we'll talk about this later on a bit more when we talk about, you know, stock-based comp and all of that stuff. But, you know, generally, such is the risk for M &A at this scale, even if Adobe didn't want out of the deal. Part of the reason these fees exist, the fee$1 billion basically that you just mentioned, in theory is that, you know, a business could offer to buy up a competitor, then drag their feet on it for, let's say a year, and then keep anyone else from buying them and also make the rival a bit complacent before actually canceling the deal.

20:28Shawn O’Malley:So for Figma or, you know, most growth companies being acquired, there needs to be a financial guarantee that the acquirer actually has skin in the game to not bail on the deal at the last minute and will fight as hard as possible to overcome regulatory obstacles, which is something that Adobe certainly did. Because otherwise, you know, the whole thing becomes kind of like a distraction and a waste of legal fees, planning and time. And now that I think about it, since this was all pre-IPO, Figma went into the public markets, at least with a uniquely strong balance sheet bolstered by, you know, that Adobe infusion.

21:00Shawn O’Malley:And that was less consequential for Adobe, although as shareholders, obviously, we would have liked to see either the acquisition go through or them not paying a billion dollars. But for Figma, I don't want to say it was everything, but it was huge. It gave them a huge degree of discretion right when they appealed, right? So we get to why there's a breakup fee, but what actually was the issue that European regulators flagged? I mean, what was the basis for blocking the deal? As you know, my co-host Sean and I are obsessed with analyzing companies. But you probably have noticed from personal experience that talking stocks is not everyone's favorite hobby.

21:35Shawn O’Malley:And I'm reminded of that every time I bring up investing at dinner or when I'm out with friends. They tolerate it for about 10 minutes. But then I get this look. The one that says, we get it, you love stocks, but this is not the place. So Sean and I thought, why not build that place? And we did it. It's called the Intrinsic Value Community. Our members range from pilots and firefighters to lawyers and engineers, but also hedge fund managers, actual rocket scientists and CEOs. And despite those different backgrounds, what connects all of us is the passion for value investing and continuous learning.

22:09Shawn O’Malley:And each week we host live calls, covering everything from vetting the group's best stock pitches to analyzing portfolios, investing case studies and conversations with expert guest speakers who are either prominent portfolio managers, CEOs or authors. And the best thing is that if you ever miss a call, we have a library of recordings for watching back every single call we've ever hosted. And if you prefer reading over watching, well, then we have dedicated spaces in the community to share write-ups, discuss investing ideas or just your thoughts on the general market. And multiple times a year, we bring the community from the virtual world into the real one, including private dinners in Omaha for Berkshire weekend and meetups in New York City to explore, hang out and most importantly, talk stocks.

22:54Shawn O’Malley:Our last cohort of members brought together 20 incredibly thoughtful people, some of the sharpest investors that Sean and I have ever met. And if you want the chance to learn alongside people like that, you should join our waitlist at theinvestorspodcast.com slash intrinsic value community. That's theinvestorspodcast.com slash intrinsic value community.

23:17Daniel Mahncke:The UK Competition and Markets Authority and the European Commission were the primary roadblocks that led the companies to terminate the agreement. And so regulators argued that Figma was an emerging threat, in their words, to Adobe's dominance. And so UK regulators believed the merger would effectively eliminate competition between two major players in the product design software market, which I do think is true and would create this near monopoly situation. And so while Adobe insisted that its own competing product, Adobe XD, was failing against Figma, regulators were concerned that Adobe was acquiring Figma specifically to neutralize a threat that had successfully captured market share from them, which would be an anti-competitive practice.

24:04Daniel Mahncke:And so the whole episode threw a lot of comparisons to Facebook's acquisition of WhatsApp, which is also seen as a move to prevent a competitor from growing into being a core threat. And that deal was actually a lot to go through. So I think they're, not to link them too much, but I think there was some lingering regret about how that unfolded that may have biased how people thought about this Adobe Figma deal.

24:27Shawn O’Malley:Generally, it doesn't surprise me that the EU was the one blocking the deal. But honestly, I was surprised more than once by, you could say, the inactivity of US regulators in the last decade when it comes to actually regulating monopolies. And I think it's more than obvious that, you know, buying Figma would have turned Adobe into even more of a monopolistic company in the space that they operate in. And I think that's why they wanted to pay$20 billion for a company that was arguably worth less than half of it at the time. And I know, though, that, you know, you've used Figma in the past, Sean.

24:59Shawn O’Malley:So I think you told me that you used to make mock-ups for the TIP website with Figma, right? So how exactly did that go? was it a positive experience with the product or more of a negative one?

25:11Daniel Mahncke:No, it's true. I'm not sure I was getting nearly as much out of the platform as I could have, but I made some bare bones website designs to show how I wanted things to function for our design team and programmers so they could go then implement those ideas. And I don't think I use Figma in any kind of real collaborative sense as it's supposed to be, but still I thought it was really nifty. It was recommended to me by a colleague who is also not a creative professional, So that's just kind of an interesting data point, as we were talking about earlier, about these cross-network effects and non-designers having reasons to recommend Figma because it is such an inclusive platform.

25:46Daniel Mahncke:But even if I was not fully equipped to appreciate Figma at the time, I do think it's important to emphasize that Figma has essentially reshaped how Teams designed software, turning what was once a painfully siloed process into a very collaborative workflow enabled by the cloud.

26:04Shawn O’Malley:So Figma Design, as it's known, is basically the flagship product that we are referring to whenever we talk about this. But what I'm most interested in, I think, is their transition from product to platform. So users have normally a one-way relationship with products, right? So with a product, you use it in a certain way and it delivers an output for you. But with the platform, well, the product becomes more decentralized. So typically anyone who uses a product can also work on features that then can be used by all others. So that's basically when a product becomes a platform and the relationship becomes two ways.

26:40Shawn O’Malley:So you follow inputs and then you get a certain output, but you can also manipulate the platform to offer different types of outputs or tools for efficiency. And I think this might sound a bit wishy-washy as I'm saying it, but the idea is to talk about Figma's plugins. So it kind of reminds me how in a lot of video games nowadays, anyone can actually become a developer. So you can create your own world or your set of rules for a game that can then be published and played by anyone else really. And so you go from having a single game designed by just one company to basically a gaming platform that still has that primary game functionality, but also can host thousands of different types of games generated by users.

27:21Shawn O’Malley:So would you say that's what Figma has done with design tools as well?

27:26Daniel Mahncke:it's a wonky idea to kind of wrap your head around at first but i think that gaming example makes the point really well i mean reddit is similar in a way to anyone can go and build a community define its purpose and rules and so on and make it available for anyone else to participate in it's kind of the same idea this is what decentralization is all about and so most figma plugins are intended to do one simple thing very well they save you from tedious work and create automations that other designers have found helpful. And odds are if you've encountered an issue, someone else has also probably encountered the same issue.

28:00Daniel Mahncke:And maybe with plugins, they've created a solution for that problem faster than the team at Figma could identify and resolve it. So that is really the promise of decentralized platforms as opposed to a centralized platform where it would just be Figma trying to make every single change itself internally. And so for example, you do need baseline designs of your product but also designers need to produce designs showing how, say, the app or website will look in dark mode or when viewing in mobile versus on a desktop. And you can actually generate plugins that automatically create dark mode versions of each of your designs, saving you from doing double work, basically.

28:37Daniel Mahncke:And so you could argue then that plugins make the entire ecosystem for all users smarter and more robust, which further compounds the value of the company when you think about it moving from a standalone product being run by a single company to being a platform that's really almost anti-fragile in a way where you have all these different people contributing to improving it.

29:01Shawn O’Malley:It's somewhat of a subtle point, but you know, the reason it matters is that scaling a product is not as simple as adding more users and then making more money infinitely. As the customer base grows and diversifies, I think the user experience basically splinters into thousands or even millions of edge cases. So teams using the product in ways that you didn't originally anticipate they would use them. So you can either keep patching every new workflow internally, or you can shift the burden to the entire ecosystem. And that's basically the platform trade-off. So you give up some control and therefore you invite unpredictability, but you get the compounding innovation from plugins, widgets, and integrations.

29:41Shawn O’Malley:And the prerequisite is making the underlying building blocks accessible. So permissions, data access, and developer tooling. So the community can actually start building. And I think Figma has opted for the more communal approach, evidently.

29:57Daniel Mahncke:They have. And that's one of the things that makes me think about they could be somewhat resistant to AI. LLMs can spin up viable apps and thousands and thousands of lines of code really, really quickly these days. But instead of seeing that as competition, now LLMs can be used to develop integrations that make Figma more robust, for example. So not to say I know how this will turn out for all SaaS companies and AI, but if that assumption is true, then again, Figma is actually kind of anti-fragile in a way, which is a really powerful concept that we're borrowing from Sim Nicholas Taleb, who's the author of The Black Swan.

30:31Daniel Mahncke:And so as we've discussed a few times today, one of the unique and ambitious decisions Figma made was to build a platform relevant to everyone involved in the product development cycle, not just designers. And so Figma's plugin ecosystem is therefore intended to blur the line between designer and developer by letting designers create plugins, maybe with coding, for their own workflow. So again, it's like, you know, who's a designer, who's an engineer and a programmer? It becomes blurry, right? And so they're betting that a meaningful portion of the platform's compounding advantage will come from individuals wanting to improve their own workflows and then basically shipping those improvements into the comments, sharing them with everybody else, and just continuing to take this decentralized approach to incrementally improving how useful Figma can be to all different types of users well beyond the original target audience.

31:27Shawn O’Malley:Going into this, I didn't think that Figma would actually have somewhat of a moat against AI, but when you think about this, and you know how it basically becomes a platform to use AI on instead of losing users to outside AI tools, then especially I asked you before, like when you combine this with the collaborative approach, which is exactly what they're doing, I think that's a stronger mode than I initially thought Figma would have. And as I understand it, there's a lot more to Figma than just the flagship Figma design product. So what else does Figma have to offer? And how does that compare to, you know, potential AI threats?

32:00Daniel Mahncke:Well, so there's FigJam, which is essentially an online whiteboard for brainstorming fig jam gives designers and also non-designers with space to sketch user flows or to map out ideas with these digital sticky notes stuff like that and literally this is stuff that would have happened on physical whiteboards but by bringing the ability to do early stage ideation into figma's ecosystem teams can then transition from these rough ideas to professional designs in one workspace or ecosystem. And then there's also Figma Slides, which is this collaborative presentation tool. Honestly, it's not wildly different from Google Slides, but because it's part of Figma, designers can embed live prototypes or interactive elements directly into the slides from designs that they're working on elsewhere within the Figma ecosystem.

32:49Daniel Mahncke:And you can imagine that being very helpful in presenting the design work that's already been done to non-designers, which of course is an important part of the design work process. And so the last year has really been actually the year of lots of releases for Figma. Figma stepped up their product launch timelines and launched a few different apps that are still mostly in beta testing. But for context, Big Jam came in 2021 and then DevMode turned Figma into this more decentralized platform as we were talking about. That launched in 2023. and then Figma Slides came in 2024. But in 2025, we had four new products drop.

33:28Daniel Mahncke:So they went from this cadence of a new product every year or two to four in a single year. And those four new products were Figma Sites, Figma Make, Figma Buzz, and Figma Draw. And so all of these new products are heavily integrated with AI tools that are just baked into them. Figma Buzz is specifically for building creative assets for social media where, Well, Figma sites is for building websites. And so Figma draw then is for drawing out sketches and then Figma make. Well, that is the one I'm most interested and that's the most impressive one to me. With Figma make, you can basically code whatever you put your mind to in plain English.

34:07Daniel Mahncke:So basically what I mean is you can use regular language requests to have an LLM code something on your behalf. And it's good. It's like scary good. So good that it makes you wonder if all those fear-mongering AI posts are going to take all of our jobs kind of things, these doom posts, whether they actually maybe have a grain of truth to them, not to be too morbid, because it's like, it is really good. Without any code or really any effort, I think I put in like two sentences of text, I asked Figma Make to develop a meditation app for me.

34:39Shawn O’Malley:I remember when you messaged me on Slack, basically saying, look, what I just Vibe coded. And it is pretty incredible. I think you said it'd take you a minute or two. and as you just said, two sentences of input and then it considered everything you would need from there. It iterated on its own creations and tested out how to improve the product. And then at the end, you get what is actually a functional app for meditation and you send it to me. It actually looks quite good as well. And I don't know, I mean, Figma is not the strongest tool out there. So there are things like Claude, Anthropic or OpenClaw that can do similar things and obviously significantly better.

35:12Shawn O’Malley:But if you think at the average customer that Figma has and how good that tool already is, Then you think two, three, four years out. It's quite an astonishing thing to think about where this could go or where this is heading to, actually.

35:25Daniel Mahncke:Well, and also that Figma is collaborative in a sense that some of these other AI tools may be more individualized. And, you know, really what I did is only scratching the surface. I mean, all I did was go with one of their preset prompt templates. It was as easy as that. But yeah, I mean, it had different types of calming sounds, breathing techniques, different timers and stuff that it all came up with on its own with very very little guidance for me i didn't get any explicit instructions other than just saying hey build me a meditation app so what i think is really fascinating is it figured out things that i would probably want to have and then you know it did that it iterated and tested it and then built out all these different features that it thought would make sense there with kind of like stylistic discretion and i can only imagine me seriously how powerful this is of a tool for someone who actually knows what they're doing, right?

36:16Daniel Mahncke:If I can spin up a meditation app in a few minutes of my first use, what could a pro do in an hour or during a whole workday or a work week? I think it's mostly an exciting thing to think about, but man, it's a lot to process, honestly. I mean, it's overwhelming what the possibilities could be. And so just for context, Figma Make was first launched last summer in July 2025 and is now being used by 30 % of Figma's customers who are signed onto$100 ,000 plus ARR contracts. With the point being, Figma's largest customers are pretty clearly adopting Figma Make very quickly. And based on my experience, I can see why they really like it.

36:59Shawn O’Malley:I think to sum things up, you say that Figma's strategic focus has basically shifted from being a singular design tool to somewhat of an end-to-end collaborative platform. And now Figma Make is central to this next chapter in their journey as they embed AI into the applications they provide.

37:18Daniel Mahncke:The thing is Figma is not at the cutting edge of AI, right? It's not like they're building LLMs from scratch, but they can make acquisitions that enable them to do more with AI. And that's why they acquired a company called Weavey, which is now known as Figma Weave. And before this acquisition, designers using generative AI faced a really fragmented workflow. They would have to leave Figma to use tools like MidJourney or Runaway. They'd be generating assets through this kind of one-shot prompting process that can feel like, you know, you're pulling a lever on a slot machine and you don't know what the output is going to be.

37:51Daniel Mahncke:It's just totally unpredictable and hard to refine from there. And so I'm sure a lot of people who experimented with AI image creation maybe a year or two ago can relate to that. And with Weavey and now Figma Weave, it's just totally different reality. Users can chain different models together. So sort of like generating an image with one model, then animating it with another, and then refining the outputs using professional editing tools, all without leaving the Figma workspace.

38:17Shawn O’Malley:So just so I understand it correctly, Weavey basically allows designers to treat AI outputs like, I don't know, moldable clay that can be then sculpted, layered, and iterated up on, right?

38:30Daniel Mahncke:It's correct. And while Figma Make focuses on generating interface layouts and code for things like my meditation app, Figma Weave focuses on generating the content inside those interfaces. So like high fidelity images, videos, and motion graphics. And so anyone who has followed along with the Adobe story can probably recognize this as a defensive move against Adobe's Firefly, which is their generative AI tech that's trained only on legally licensed IP. That's kind of their claim to fame.

39:02Shawn O’Malley:So I presume Weave will be monetized probably on a usage basis as opposed to a per-user or per-seat basis, which is what the norm was in enterprise software for a long time. But now we're seeing AI changing that dynamic. Companies might not need as many designers anymore. So selling on a per-user basis wouldn't be the optimal strategy with AI tools. So, you know, there's a single user who only can be so productive and you basically want to build based on how much computing power they use effectively. So, but the bigger question for all of SaaS that the market is trying to wrap its head around is whether software businesses are becoming more like variable cost businesses.

39:40Shawn O’Malley:I mean, normally you can scale software with very little incremental cost. But now if incremental use comes from compute heavy AI tools, well, then the inference costs are very high. And that could mean that many software businesses, including Figma, become significantly lower quality. And that's basically the overall market concern. Yeah.

40:01Daniel Mahncke:And I think that's why Figma Weave is currently a standalone product. But it's expected to be integrated into Figma's greater platform over time. And so, yeah, I mean, it utilizes this separate system for AI credits, which sort of hints at a world where enterprise design subscriptions will be provided on a consumption-based model as opposed to a per seat model. And for now, though, they're not actually charging anything for AI credits. So we haven't really seen this even come to fruition yet. They want to get people to try and try the tools and embrace them before they start charging any money.

40:33Daniel Mahncke:So at the moment, Figma is entirely shouldering these inference costs. And again, that's why I say it's really hard to understand how profitable Figma's normalized margins will be because we're not even at a point where they're actually fully monetizing products and their ecosystem, they're treating them as loss leaders that they're subsidizing.

40:55Shawn O’Malley:So let's talk about Figma's overall billing strategy then. How do they actually approach monetizing their software?

41:02Daniel Mahncke:There's been some big changes recently, actually. Early last year, Figma underwent a significant overhaul of its subscription billing model. So we just talked about the future that may rely on consumption-based pricing with AI tools. But in the present, what we've seen is a shift to admin approved upgrades. And so for context on what that means previously, Figma had a user driven model and basically where if you used Figma, you could order new paid seats for your colleagues or anybody who you worked with who you thought needed access to the tool. And then they would get billed and retroactively account administrators at those companies would review the charges.

41:40Daniel Mahncke:So basically, any user had the discretion to order more licenses or seats, whatever you want to call it, for their co-workers to be able to use without needing direct approval from the higher ups at their company. And when you're working with young companies, they, I'm sure, appreciate that flexibility. But as you move up the chain, more mature enterprises do not want that. They want to know where every dollar goes. They want to be able to track it. They want to know who expensed it and why. And so this is kind of a trust-based policy that leaves the door open for unexpected costs, which, yeah, I mean, nobody likes that.

42:16Daniel Mahncke:But especially these stale, more mature enterprises do not want to get unexpected bills. So the new model requires upfront admin approval before any new licenses are provided. And so the trade-off is that while this gives enterprises, bigger customers, more visibility and control over what their spending will be in a period, it introduces this friction to the organic growth loop that Figma had really long benefited from where people would start using it and then say, hey, let me sign you up and let me sign you up and we can all work on this. And then you start recommending it to other people. That organic viral growth loop really gets kind of a boot on it in this situation.

42:57Daniel Mahncke:It just gets absolutely smothered. And, you know, the other thing is that Figma, as it focuses more on enterprises, it's moved away from selling individual products like Big Jam separately. And so instead, it introduced a handful of different seat packages with kind of varying degrees of access to the company's suite of products. And so it's similar to a lot of the packaging that Adobe offers. And because a bunch of new tools were released last year, what they did was they raised the price for a full seat. So a seat with access to everything that Figma offers, and they increase the price of that by 30%.

43:32Daniel Mahncke:And if you go on into some Figma subreddits, as they did, I saw a handful of people complaining about this, saying that, like, hey, they really enjoy having full seats, but they don't appreciate the price going up for new tools being added if they don't use them. If you don't use Figma Make, but now your overall subscription is increasing 30%, that's going to be really annoying to you. And so that is the challenge with bundling generally. to some folks, for people who use the whole bundle, it's an incredible deal. And to others, it's a point of frustration because you can't shop for the specific products a la carte that you might want and are instead implicitly paying for maybe things that you will never use.

44:10Daniel Mahncke:And yeah, that can be a real drag on sentiment when you're forcing people into these more pre-packaged purchasing options.

44:20Shawn O’Malley:That's a common criticism with a lot of these software companies. where, I mean, honestly, that's one of the arguments. AI could come in and then only replicate the tools that most people are actually using, while currently they pay up for the entire suite of products, even though they're not using them. One of the numbers, though, that I've heard, which is fairly impressive from Figma, is their NDR metrics. Any thoughts on that?

44:42Daniel Mahncke:Yeah, so NDR stands for net dollar retention. It's not a term that I think everybody will know. And there's some good and bad news to having a good NDR with Figma. The good news is that for customers spending over$10 ,000 annually, so larger corporate customers, but not the biggest ones, their net dollar retention hit 131%. And so, okay, what does that mean? Well, if you look at how much money in total these customers paid in, let's say, 2024, and then you look at their spending in 2025, in aggregate, that spending increased by 31%. So that includes customers who might have canceled their contracts or downgraded their contracts or also expanded their contracts with Figma with the point being on net of basically a sample size of customers.

45:31Daniel Mahncke:That spending increased pretty significantly. And so that 131 % NDR figure is a net figure. And the takeaway is that enterprise customers and aggregate are, as I've been saying, spending more on Figma's tools. The bad news is that this NDR number primarily reflects results from before Figma changed its billing strategy with these admin approvals. So it's almost stale information. It's one of the biggest selling points for the strengths of the company. And we don't even know what that will look like going for. We just literally don't have the data yet to know how these changes in strategy will impact NDR.

46:06Daniel Mahncke:But I'm sure we'll see some growing pains along the way, even if it is ultimately the right move.

46:11Shawn O’Malley:It's not exactly the same, but it kind of reminds me of when Adobe switched from selling its products on annual licenses. So they would release Photoshop 2009, and then the next year, the 2010 version would come out, and then you could buy it and own it, to then charging recurring subscriptions. So rather than owning the software, you're basically renting it or, you know, paying to access it for a period of time. And that's super common now. But 15 years ago, it was a big change. And Figma's move here isn't on the same scale. But the point is, as technology changes or simply as businesses mature, changing pricing models can become necessary.

46:48Shawn O’Malley:And even if it's ultimately the right move, like I think we can say pretty confidently now it has been for Adobe, they definitely had some ups and downs from the transition to SaaS. And honestly, when you look back at the headlines back in the day, it was not only negative feedback from customers who now had to pay more money. It was also a lot of analysts not thinking that you would make more money with this model because to that point, if you buy a license for Adobe, you'd get$2 ,000 upfront. Now you're basically only getting$200 upfront and then month by month you're paying. So it's basically a bet on a high retention rate with your customers.

47:22Shawn O’Malley:Now we know it paid off, but it's not always clear in the beginning.

47:26Daniel Mahncke:So in their S1 IPO filing, Figma reported having 450 ,000 paying customers as of March, 2025. And they don't report that number quarterly, but given Figma's$1 billion in ARR, annual recurring revenue today, it would imply that they have about a revenue per customer of maybe$2 ,000 per year or$185 a month. And so one wrinkle to that is how they define paid customers, which is that a paid customer can technically refer to an entire organization, or if there are multiple departments with an account and their own plans, then those can get counted as multiple different paid customers, even if they're all within the same company.

48:06Daniel Mahncke:And I don't say that as like a yellow flag, but it does show me that they have a very top-heavy customer base. And honestly, it may be even less diverse and more top-heavy than we think, right? Just from the reported data, the top 0.2 % of Figma's customers in early 2025 generated approximately 40 % of the company's ARR. And then the top 2.5 % of paying customers comprise more than 60 % of Figma's ARR. So you have just a small number of customers that are basically driving the entire business.

48:37Shawn O’Malley:Wow, okay. So it's very much not a tool used by either individuals or just small companies like, for example, Canva. And more so, it competes with Adobe for SMBs and perhaps even more medium businesses than necessarily the smaller ones. And I don't necessarily think if that's a positive or a negative, but it's different from what I thought the customer diversification would look like.

48:59Daniel Mahncke:I should also mention that to my surprise. Figma is a pretty international business. Good design transcends borders, I guess. Their revenues are basically 50-50 US and international. But, and stop me if you've heard this before with so many of the companies we cover on this show, they monetize their US customers significantly more. So with only 15 % monthly active users being based in the US, almost half of the company's revenue comes from customers in the United States. And so the other thing we should mention is that deal momentum has been picking up, which is a great leading indicator for the company.

49:33Daniel Mahncke:Customers signing multi-year deals increased by 27 % quarter over quarter for Figma. So it is full steam ahead for the company right now.

49:43Shawn O’Malley:So just taking a step back still, I mean, I see a business with, you know, viral word of mouth adoption. you have low churn, you have expanding use cases, and a mix of self-serve and enterprise sales contributing to what is very strong top-line growth. Unless AI suddenly flips everything upside down, it is easy to see why the market was so excited about Figma at IPO. And beyond general exuberance, it's less clear to me why it has declined about 80 % since then.

50:14Daniel Mahncke:the ironic thing is that within its niche figma looks pretty close to being a monopoly and normally investors love monopolies so you know this is why after all regulators blocked the deal with adobe not because the combo of the two would create a monopoly in collaborative design but there already was one and allowing that to be merged into all the other verticals that adobe has monopolies over it that would be problematic and just from 2020 to 2022 figma's market share went from about 50 to 60 % to as much as 90 % in 2022. And so basically that happened as competitors around the globe failed to keep up with them.

50:52Daniel Mahncke:So many of Figma's competitors just outright failed. But I think the problem is that the TAM, the total addressable market and Figma's core business, is just not big enough. And so as they scale into these new areas with Figma Make and Figma Sites and Figma Buzz and all these new exciting products, they're facing much more intense competition is they're more directly stepping on their competition's toes, whether that's Canva or Adobe.

51:17Shawn O’Malley:That's the downside of, you know, working in between Canva with mostly individual customers and small businesses and Adobe with, you know, Hollywood Studios and large corporations as customers. And UTIM is relatively limited and expanding it then automatically means dipping into territory that already has its incumbents and to some extent monopolies. And I mean, Canva is on the one side, Adobe on the other, both are strong companies. And I think many people outside of the creative industry don't even see these companies as monopolies because they mostly think they compete for the same customer, more or less, although we now know that's not necessarily the case.

51:53Shawn O’Malley:But we also like to emphasize that founder-led companies are much more likely to reinvent themselves and find ways to succeed even when the odds are stacked against them. and Figma is still founder lad. So I want to ask you about one of the most important things as far as when assessing the CEO or the management team in total, which is the comp package. It looks quite generous at first glance, but what are your impressions of Dylan Field? I know Brian Chesky is your favorite eclectic tech CEO. So maybe you can tell me how Dylan compares.

52:27Daniel Mahncke:Oh man, you're putting me on the spot there. I probably don't like him as much as Brian Chesky, but I do on a personal level really like Dylan Field. He comes across as just being sincerely kind. I think if you listen to 20 minutes of an interview with him, you'll see that. And that's why people often paint him as being a CEO in the tech world who has managed to find success without being some kind of manic psychopath who's sleeping on the factory floor every night or firing half the company impulsively and just doing all kinds of crazy things. He just seems like a normal guy. And granted, he's a very smart and very rich guy, but he's not trying to be king of the world either.

53:06Daniel Mahncke:And I might be biased, though, because in one of his interviews, he said that he just loves Tusana. And so maybe he likes Tusana as much as I do. And yeah, maybe that's why I like him. But no, he seems like just a really solid guy. It's hard to find any issue with him.

53:21Shawn O’Malley:Well, then you're too biased for me to believe whatever you say about it. Because, you know, just for the audience, Sean would live in a sauna if it were possible. When we went to the TIP summit in Montana last year, he went into the sauna more often than I walked by it. So, you know, just to give listeners an idea. But getting back to serious investor research, what's his take on AI?

53:41Daniel Mahncke:Yeah, so he's definitely maybe talking his own book a little bit when he talks about AI. But I think there's some truth to his insights. And so whenever he talks about AI, he mentions how AI lowers the barrier to the creation of images and graphics, such that design and craft are the true differentiators. And it sounds like something Hermes would say, honestly. And you can summarize his view of design in an AI world as being that for the best artists and brands globally, AI is a tool they can use to push beyond the prompt rather than having AI creations be the final destination on their own. And so for individuals and small to medium-sized businesses, maybe AI output with some light prompting is all they need.

54:25Daniel Mahncke:But I think he would tell you the most valuable brands globally aren't going to settle for that. And more than ever, taste and distinction will matter. And brands that lean too heavily on AI-generated content will ultimately be penalized for that. That's his outlook.

54:41Shawn O’Malley:Perhaps that's true. But from what I'm seeing, though, here, the only people being penalized currently are shareholders. I mean, we touched on it a bit earlier. But if you look at Figma's financials without context, they actually look terrible. It's like, you know, they IPO and the second that happens, margins just collapse.

55:01Daniel Mahncke:It does look that way. I mean, yeah, this is the RSU, Restricted Stock Units, release that we were alluded to before. And so effectively for years, and also this is common practice, but Figma was not recognizing the expenses associated with the stock awards that they were giving to employees as part of their compensation packages. And so maybe for years, if half of someone's comp package was stock, well, only the cash portion would have been reflected in the company's pre-IPO financial statements. So only the cash was being written off as a business expense. And with those stock grants, there are basically these caveats that have to be fulfilled, like continued employment for certain periods of time for the shares to vest and then be paid out.

55:42Daniel Mahncke:But also a liquidity event can trigger vesting. So in Figma's case, that could trigger the vesting of huge chunks of the company's accrued stock-based comp. And what is a liquidity event? Well, that's an IPO. So you could say that the company's 2024 and 2025 financials are artificially bad because they include many past years worth of employee costs. Or you could say that their private company accounting was artificially favorable and did not account for real economic costs that should have been accounted for. And I think both are true. It's just a matter of perspective. The reality is that looking at their pre-IPO or post-IPO financial statements, at least for 2024 and 2025, they're just not all that meaningful.

56:24Daniel Mahncke:And that makes Figma hard to value. We don't have a ton of insight into what the business's margins will look like in the future when properly accounting for stock-based comp, also without all of this catch-up stock-based comp biasing things. And so they had to recognize something like$800 million of stock-based comp just at IPO. So yeah, I mean, for a company with a billion dollars in revenue, that really distorts things. They then facilitated a tender offer where investors bought 24.4 million shares at 23.19 a share. So it was another$566 million.

57:03Shawn O’Malley:I've actually seen people on X making memes about this. But apparently, even though Figma accounted for a lot of this stock-based comp vesting, the shares weren't necessarily immediately liquid for employees. So you have these insider lockups, which are pretty common. So basically, employees can sell trenches of stock for certain periods after IPO. So sometimes that's three months, six months, nine months, you know, stuff like that. And the rationale behind that is you don't want to have one huge wave of selling the stock when the IPO comes, so the stock's down 90 % because there aren't enough buyers to absorb all the insiders wanting to sell out.

57:40Shawn O’Malley:So that's where you space the basically sell of these stocks out. And these waves of selling have come now. And as the market has soured on SaaS companies generally and Figma specifically, you now have some insiders who've waited for years to finally cash in their stakes in Figma. And now those shares are down 80 % from IPO. So think about how painful that is. you could have sold your shares for five times as much, but you weren't legally allowed to. And now$5 million becomes$1 million. And we likely don't need to shed tears for them because I'm sure they're still going to make out pretty good in terms of compensation, at least.

58:16Shawn O’Malley:But that can't be great for internal culture either, right? And you have cohorts of insiders who miss out on significantly better prices. And this is a company that, after all, has had stock-based comp costs, and this is incredible, exceed 100 % of revenue. for two years in a row.

58:34Daniel Mahncke:And the other thing, since you mentioned what I know about Dylan Fields comp more earlier, is that his comp structure was based on these multi-year price targets. So basically, if the stock hit certain price levels to the upside, he unlocked more and more comp. And in hindsight, oh my gosh, we were joking about it before the call. I mean, it might be the most terribly implemented plan we've ever seen at any business. because in a very short order after IPO, the stock burst through what seemed like unimaginable levels beforehand only to crater back down to earth immediately. And the implication is that Dylan Field has already earned his bonuses for stock performance that the board thought it might take him years to reach.

59:19Daniel Mahncke:And he did so almost immediately. So now on top of all this other stock-based comp vesting that we're talking about, he's owed a great deal of money. And yet the stock is now at the lowest point it's ever been. So that's what you get when you just don't incentivize people for sustained value creation. And the result is that Field had 11.5 million shares vested in like two months. So that did not help at all with the distorted financials last year. And in theory, he has no bonus incentives to keep him motivated over the next few years since he has already achieved all of his goals, even if the company did not stay at those price levels.

59:57Daniel Mahncke:They didn't draw out that caveat. where you have to stay at these prices for a month, six months, a year. Basically, they just touched him. He unlocked all this money and then the stock collapsed.

1:00:06Shawn O’Malley:You can certainly argue that just having price targets in general as part of your compensation package is not the best way to do it. But without having these periods of, let's say, a month or maybe two for the stock price to actually be above that, it's just ridiculous. I mean, I don't think I've ever seen a worse pay package here on the show. And I mean, these are the perils of poor compensation packages and not tying calm to things like earnings per share or at least total returns per share over time. And I already know what you're going to say, Sean. I mean, you don't understand why Dylan Field even needs bonuses to be incentivized when he already owns a big chunk of the stock anyway.

1:00:42Daniel Mahncke:I don't. You know me really well. But seriously, I mean, does anyone in the world think that Dylan needs bonus stock grants to keep him focused on running the company well when he already owns 13 % of the equity? anyone should want to control dilution and drive shareholder returns. It should be him. And it just, it baffles the mind. And I mean, to be clear, I don't blame him for negotiating a deal that pays him more, but I do blame the board. It shows really a total lack of independence. No board with any real critical thinking or an intention of keeping the CEO in check would sign off on a package like this where so much money can be earned are hitting such fleeting targets that have really nothing to do with how the business compounds its underlying intrinsic value over time.

1:01:29Daniel Mahncke:And so, I don't know, a CEO should not be rewarded for their stock becoming a meme stock. And that's basically exactly what happened.

1:01:38Shawn O’Malley:It sounds brutal, but I think you're absolutely right. And I mean, it's no coincidence that, thanks to a dual share class structure, despite owning only 13 % of the equity, Field has 73 % of voting power. So he really does control the company fully with no checks in place. And speaking of meme stocks or at least unconventional finances, is it true that Figma holds$100 million worth of Bitcoin on its balance sheet?

1:02:04Daniel Mahncke:Well, it's not helping with the meme stock bear arguments against Figma. I'm more of a Bitcoin bull than most. And I'm not totally sure where you land on it, Daniel. But I mean, it doesn't make my stomach churn that they're invested in Bitcoin. But I mean, yeah, this has got to be the first company we've covered that actually has a substantial Bitcoin investment. And there are some others out there for sure. It was most famously MicroStrategy. But I think it's just a perfect narrative point, though. You know, if you're bullish on tech and Figma's growth, then there's a decent chance you're excited about them owing Bitcoin.

1:02:37Daniel Mahncke:If you're skeptical of AI disruption and paying up for unprofitable tech companies, you're looking at this Bitcoin exposure and just thinking it's kind of a ridiculous thing to do for a company that has never generated a dollar in real profits. And so I'm being a little stereotypical, but my point is less about Bitcoin in actuality and more about maybe illustrating how two people can look at the same company and come away with such wildly, wildly different perceptions. And sometimes for good reasons, I think in this case, you know, either makes you inspired by management's forward lookingness or on the other stream, it makes people think that these are capital allocators who are speculating and not making mature decisions on behalf of shareholders, like focusing on, you know, managing stock-based comp instead of buying Bitcoin.

1:03:21Shawn O’Malley:I don't necessarily or particularly dislike them holding Bitcoin, but I think it just fits the picture too well. I mean, it's atrocious compensation structure. And on top of that, you buy a hundred million dollars worth of Bitcoin. And again, it's less about Bitcoin, than about companies that speculate by putting money into Bitcoin instead of investing it back into the business, which communicates something to shareholders. And I personally don't like what it communicates. And it's not like a cash position that you could see as, let's say, a buffer for bad times. I mean, Bitcoin is down 50 % over the last six months.

1:03:54Shawn O’Malley:And that doesn't mean it won't be worth multiples of that in a couple of years. But if you hold cash as a company, you usually don't want that type of volatility. So you can use that cash in bad times. And that's arguably even more important when your company is burning money. Anyway, where does all of that leave us? Do you want to get into a valuation discussion for this business?

1:04:16Daniel Mahncke:It's a little uncharacteristic for our show, but I kind of don't. And I mean, just to be fully transparent, I have no idea how to value Figma. I mean, I'm sure I could throw some numbers into a spreadsheet and we can make some guesses. But like, seriously, I have no idea what their future holds. I think some of the tools from Figma are really, really slick. and I've enjoyed using them personally. And the way they're integrating LLMs, I think is super impressive. But it's not at all obvious to me that as they move up the chain and target more enterprise customers, that they can compete with Adobe's product ecosystem.

1:04:48Daniel Mahncke:To say nothing of how AI will impact things or how these various other changes they've implemented are. I mean, we don't even know what their normalized financials will look like once all this IPO-related stock-based comp vesting falls off alongside the kind of obscene bonuses that Dylan Field has earned, nor do we know whether their new billing strategy will drive substantial subscriber churn or reduce growth in the future. And so risk and uncertainty are not always the same thing. But in this case, there is so much uncertainty, I would not even know where to begin trying to underwrite the risk reward profile going forward.

1:05:25Daniel Mahncke:I mean, we just literally need more data. We need years worth of more data. I mean, perhaps I have another full year's worth of financials at a minimum and we might have some clarity. And so my feeling is that Figma is an impressive growth company and I'm glad to have studied them. But I'm not walking away from this terrified for Adobe's future. And I'm definitely not anywhere close to wanting to invest in the business myself at this point in time. And I think I was maybe excited about it initially when I first dove in. How could you not be with the kinds of growth numbers that they've been putting up?

1:05:56Daniel Mahncke:and just a decade becoming a multi-billion dollar business and being a user in the past who loved Figma, I think that all has biased me a bit. But it's one of those where the more we've dug in, it's just the uglier and uglier it's gotten.

1:06:11Shawn O’Malley:I've never been a user and I didn't really have an opinion on the company before today's pitch since I never really considered investing in Figma at the IPO valuations either. I got to say though that after today's pitch, I'm probably even less excited about it. I mean, the incentive system might be one of the worst we've looked at. Stock-based comp is outrageous. And while I like the personal user experience, and Figma seems to have good AI tools themselves, I would still consider Figma to be at least more prone to be disrupted by AI than Adobe. And just because, you know, the customer profile and the lower switching costs that you see with Figma, and, you know, the market doesn't even like to take a chance with Adobe, so why should it with Figma?

1:06:53Shawn O’Malley:But you also mentioned before the call, and I totally agree, this could be a company that quadruples in a couple of years from now because you see this inflection point where all of the stock-based comp doesn't look as bad anymore and they suddenly start to make money. You know, margins going from negative to positive. So I could easily see how the stock performs well in the future too and then people will tell us that we're idiots because we didn't see it. But as you pointed out before, some of the stocks we look at just go on the too hard pile. While this could be successful, they don't show as much.

1:07:21Shawn O’Malley:And I told you before the call that what I really don't like to see is that at least to me, it looked like the CEO was already willing to sell the company to Adobe for 20 billion. And since then, it felt a lot like he just wants to have a payday. So getting a compensation package where he can make a lot of money as soon as possible, going into the IPO. I don't think that a lot of the founders that we looked at here on the show, I mean, Brian Chesky, Mark Zuckerberg, they wouldn't have sold their companies at the first chance they get. They wanted to build something huge. And it doesn't seem to me like, you know, Dylan Field is trying to do the same.

1:07:54Shawn O’Malley:And if I see these numbers and I don't trust the founder to the same extent as some others, it's just on the too hard pile for me.

1:08:02Daniel Mahncke:Yeah, I mean, we saw Reed Hastings at Netflix back in the late 90s decline a sale offer from Jeff Bezos and Amazon. So yeah, I think the really, really special, ambitious CEOs of the world are not going to sell at what could be the midpoint for an earlier stage in their journey. So I definitely think it's kind of concerning that Dylan Field was so willing to just tap out and then all of a sudden had to re-energize himself about wanting to work on Figma further, which is maybe why he needed all of these egregious stock-based comp packages. But yeah, apologies to the Figma bulls and bag holders that we couldn't be a little bit more optimistic on the future of this thing.

1:08:44Daniel Mahncke:That's just based on what we know today. And a year from now, I think we could have a 180 and we see what the business looks like after these billing shifts and how the AI tools and pricing for them unfolds, what more normalized earnings look like. I wouldn't be surprised if, yeah, we had a very significant sentiment shift on it. But it's just hard to feel that way today. So with that, we're on to the next. There's nothing holding us back. So Daniel, give us your hints for next week's pitch.

1:09:13Shawn O’Malley:Well, I told you recently, Sean, that I think it's much more fun to research companies right now than it was maybe a year ago because the AI sell-off offers so many opportunities to search for value and you won't always find it as you see today. But next week, we will look at another company that was caught up in the broader market sell-off. And it's a small business, probably the smallest one we have looked at yet. And it's not operating in America. It's actually operating out of Australia. So I actually think this is the first time we'll cover an Australian company. And it's a business that is also growing through acquisitions like Constellation Software and Twentstime that we already talked about, but it operates in yet another industry.

1:09:52Shawn O’Malley:And its track record is truly amazing. And so we basically get a company which is in its early stages and has a lot of room to grow with a track record that is amazing. And also it's founder-led. And I would say the founder is pretty confident about building this business. All right.

1:10:09Daniel Mahncke:Well, I think this is going to be a little more niche. And yeah, for our fans of serial acquirers out there, you have a lot to look forward to next week. So on that note, I think we'll leave it there for today. And before we go, I just want to share some inspiration, a little quote, as we always like to do. Today's is from none other than Steve Jobs, who says, you can't connect the dots looking forward. You can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. And I see the dots at Figma. I'm not sure I totally trust how they'll connect, but I'm not betting against them either.

1:10:43Daniel Mahncke:Best of luck to Dylan Field and Figma. We'll see you all next time.

1:11:45Shawn O’Malley:Transcription by CastingWords

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