Figma responded to runaway investor demand by securing US$1.2bn from its NYSE IPO late Wednesday that saw the digital design software provider dramatically increase its valuation but not the offering size.
Morgan Stanley, Goldman Sachs, Allen & Co and JP Morgan priced 36.9m shares, including 24.5m by selling shareholders, at US$33.00, one dollar above the upwardly revised US$30–$32 marketing range and a step change from the US$25–$28 range at launch.
In what is a significant transaction for venture capital-backed companies, the offering was more than 40x oversubscribed, resulting in half of the investors who put in for the deal receiving no stock at all. The top 25 institutional investors received 70% of the stock sold, bankers involved in the offering told IFR.
Figma management played an active role in doling out stock, with long-only mutual funds figuring prominently, the bankers said.
“Figma is a must-own asset,” said one hedge fund manager. “If you are a long-only portfolio manager focused on software, you are compelled to buy the stock.”
Figma, whose software is used by 95% of Fortune 500 companies to design apps and websites, was valued at a fully diluted market capitalization of US$19.8bn, more than 20x the US$821m of revenue generated over the trailing 12 months ended March 31.
The strength of demand and limited supply of stock sold have led to expectations Figma could trade above US$50 when it debuts on the NYSE Thursday under the ticker “FIG”.
Show me your hand
To tamp down demand, the banks leading the offering required investors to submit orders with a specific price and number of shares. Used on hot deals in 2020-2021, the order entry system required investors to place “limit” orders rather than allowing “market” orders as is typical on other IPOs.
Morgan Stanley, which dubs the price and size bookbuild “ALPS”, and other banks on the deal did allow input from their salesforces, contrasting to the all-electronic auction process used by other banks on similarly hot deals.
“I don’t know if it really affects our process,” said a second buysider. “It does require us to show our hand a week before we need to.
“I do think (Morgan Stanley) are trying to develop a process that is constructive.”
Figma is only the third VC-backed tech company to go public in the US this year whose IPO was larger than US$250m, following the debuts of SailPoint and Chime Financial in February and June, according to LSEG data.
In the case of SailPoint, whose security software is used by enterprises to validate identities, strong investor demand allowed it to price 60m shares at US$23.00, the top of an upwardly revised US$21–$23 marketing range and compared to 50m shares and US$19–$21 at launch.
SailPoint fell 4.4% on debut and now trades at US$22.99, just below where it went public.
Investors were critical of the SailPoint IPO process for being overly aggressive on valuation and price. Morgan Stanley, Goldman Sachs and JP Morgan, all of which are involved in the Figma IPO, were joint bookrunners on the SailPoint IPO.
Figma is a fully mature business with no need for capital.
The company is using proceeds from the sale of 12.5m shares to pay US$330.5m of tax obligations associated with employee restricted stock units, leaving roughly US$1.5bn of cash in place.
Nothing ventured
The IPO amounts to a huge payday for VC backers.
Figma co-founder and CEO Dylan Field sold 2.35m shares to pocket US$77.55m, marking his remaining 54.2m shares at a cool US$1.8bn. Greylock Partners, which led a US$3.9m seed round in 2013 at a US$10m valuation, is taking a US$2bn mark, inclusive of 3.1m shares being sold on base deal and greenshoe option held by the banks.
Index Ventures (US$2.2bn), Kleiner Perkins Caufield & Byers (US$1.8bn), and Sequoia Capital (US$1.1bn) are among the other selling shareholders participating in the windfall.
That Adobe’s bid to acquire Figma for US$20bn toppled in 2023 is fortuitous.
Other privately held software companies are most certainly taking note.
“We believe Figma is an ideal IPO candidate to lead the way for additional software IPOs over the next 12–18 months,” wrote DA Davidson head of tech research Gil Luria in a note to clients earlier this week. “Figma’s growth trajectory is benefiting from the exponential growth of digital content and software being created by both individuals and enterprises.
“We believe Gen-AI further accelerates this trend, removing the technical barriers that previously limited users from creating applications and content.”
Figma grew revenue in Q1 by 44.8% to US$228.2m, making it best of breed among publicly traded SaaS peers tracked by Luria.
Canva, a competitor to Figma, Databricks and Genesys Software, all of which are venture-backed, are among the IPO candidates on Luria’s list.