founders would ultimately benefit from “a world in which you have six or seven or eight potential suitors” rather than “just one or two.”
Real talk Lina
founders would ultimately benefit from “a world in which you have six or seven or eight potential suitors” rather than “just one or two.”
Real talk Lina
Or in this case, none?
The point is that Figma is now another one of these suitors.
yep. So perhaps don’t block every potential transaction on flimsy pretense? Icing the transaction market seems like a great way to scare off potential competing acquirers in the name of social engineering.
I don’t know. All I know is that Lina is out of power, and suddenly we see an upswing in M&A. Coincidence, I’m sure.
Problem is, by the time she got into power, everyone had consolidated so icing the transaction market was pretty much only outcome.
Lina Khan was entering a market that was deeply flawed thanks to decades of bad policy.
> Problem is, by the time she got into power, everyone had consolidated so icing the transaction market was pretty much only outcome.
That's the talking point, but it doesn't survive even 30 seconds of thought. Yes, the biggest tech companies are very big -- debatably too big! -- but there are easily hundreds of smaller cap companies that you probably haven't heard of who are big enough to acquire startups. If anything those companies are the bulk of the M&A market, and the FTCs actions shut it all down [1].
The problem with the Khan view of the world (IMO) is that it was so fixated on the killing the whales that it didn't realize it was killing the other fish.
[1] By way of explanation: just by the nature of software economics, if you're big enough to make acquisitions in some niche industry, you probably own that industry (or are at least a duopoly player) and are therefore concerned that the FTC will target you.
What is your argument? That smaller roll ups could not happen and that was bad? Alot of smaller M&A in tech space was bad, it just was not Figma buying Adobe bad.
I think startups exiting via M&A is part of the problem. It creates perverse incentives which is basically fuck profits, squash all competition while lighting money on fire and THEN when you are so embedded, sell the company so original investors get their money back and new owners screw over everyone knowing there tunneling out of your really thick walls is going to be extremely difficult.
In a model where company had to turn a profit and investors would slowly make their money back, it would probably be net win.
> Alot of smaller M&A in tech space was bad, it just was not Figma buying Adobe bad.
Yeah, you're gonna have to defend that assertion.
> I think startups exiting via M&A is part of the problem. It creates perverse incentives which is basically fuck profits, squash all competition while lighting money on fire and THEN when you are so embedded, screw over everyone knowing there tunneling out of your really thick walls is going to be extremely difficult.
I hate to burst your bubble, but the chances of a small startup getting acquired while "lighting money on fire" is basically zero. You have a particularly narrow-focused lens on startups that is driven by a few high profile stories. When you're on that sort of YOLO rocket ship, you're not looking for acquisition -- if it happens, something went wrong.
So yes, part of my argument is that smaller roll ups could not happen, and that market looks nothing like what you're describing.
I'm not a Khan fan, like, at all, but by the time you're at the point where the FTC is getting involved in your M&A, you've crossed the threshold of success; all the signals to future startups about your path being promising have been sent.
In fact, if future competition is contingent on successful M&A activity, that’s a sign of such deep organizational rot that you either have to radically transform management or ride the company down.
Not everything needs to last and companies that can’t radically transform their management culture to enable innovation and competition deserve to wane until they’re in a steady-state or they go under to allow for a new competitor to rise.
I disagree. A lot of smaller acquisitions went away during the Khan reign, and from what I was hearing it wasn’t coincidental.
Basically the random and aggressive nature of it was having a chilling effect on all M&A. Why would you go thorough the hassle of a small acquisition (as a buyer) if you knew there was a even a 10% chance that the FTC was going to take an interest?
Scrutiny scaled with the size of the buyer. When a top-five tech company is the buyer, it doesn’t really matter how small the purchased company is. Many of the most concerning acquisitions were small… Instagram had 13 employees when Facebook bought it.
When a huge company can easily acquire basically any small promising competitor, that is exactly what Khan (and many others of both parties) consider a problem. Chilling those sorts of deals was indeed the point.
But if the buyer was, say, the 312th largest tech company in the U.S., the chance of FTC intervention was essentially zero. If buyers in mid-size range were pointing at Khan to explain an M&A slow-down, I personally would not take them at their word.
> Scrutiny scaled with the size of the buyer.
Maybe, but it doesn't take a lot of scrutiny to scare the crap out of you if you're a major player in some niche industry with a few hundred million in ARR. Which is most public companies.
That's the perverse thing about this stuff: the biggest players are probably the least sensitive to the regulatory burden.
> it doesn't take a lot of scrutiny to scare the crap out of you if you're a major player in some niche industry
This "scare" characterization isn't how anybody thinks in reality. Everything is a cost benefit analysis, the risk that you'll come under FTC scrutiny is going to be a factor weighed against the potential gains of the acquisition. Companies understand their own place in the market relative to their size and dominance, the overwhelming majority of companies know they basically have nothing to fear from the FTC ever.
Not even a little. The biggest players are the most sensitive to this kind of thing. Imagine an independent Instagram and Whatsapp running around. That's a fucking nightmare for Mark.
It is precisely the companies that have lost the internal capacity to innovate (Meta) that have the most to lose and the companies that were going extremely well already (Instagram had a bunch of suitors and could have chosen to punch out later in the process, I heard this from Krieger in person) who have the most to gain.
The losers here are people who can buy and hold FAANG as a basket and just sit back and let the market transfer all wealth to pensioners. The winners are founders, employees, new startups, consumers, cities with more offices in them, that's a partial list.
> Many of the most concerning acquisitions were small… Instagram had 13 employees when Facebook bought it.
Instagram was bought for $1B. Whether they had 13 or 1300 employees, a $1B acquisition isn’t small in an anti-trust sense.
Do you have a source for these claims? Specifically smaller M/As being skipped or killed.
Figma's market capitalization as of the close on Friday is 59 billion and change. Adobe offered 20 billion.
Because the shares were sold to the public and now trade at three times what the absolute ceiling on their value would have been, and because everything from early options to later stage RSU equity comp structures will now convert at the full market valuation, the preference ladder and ratchets and all the other ways you can get Windsurf'd as an early employee (sometimes even a founder!) don't kick in, so the rank-and-file equity holder is rich now too.
Future founders now have another well-heeled public suitor.
If you even remotely believe in Hacker News style "tech startups make people rich and this is good" stuff, then this is a grand-slam home run win by any measure.
Maybe time to re-evaluate what you think of Lina Khan's policy agenda in light of data on the outcomes? It's of course possible there is some other data point you have in mind where it went poorly and you keep your opinion. But if that opinion was of the bland "regulation is bad for tech startup people trying to get rich" variety, seems maybe time for a re-think?
I agree with your general point, but Khan was excessively trigger happy in a way that highlights exceptions to your observation. E.g. blocking Meta acquisition of Within was nonsense that did nothing to validate the concept of VR fitness as a promising category (anytime soon)
Edit: Within, not Withings
Just because VR fitness was a flop hardly proves your point. Most people expected that to happen.
Her point is that m&a isn’t the best thing for the economy or founders. Unchecked m&a creates cannibal capitalism where one mega zombie firm scoops up all competition.
An interesting read on this kinda thing in South Korea: https://www.reddal.com/insights/growing-korean-smes-and-star...
Possibly interestingly, it would have been good for _customers_ of VMware if their acquisition by Broadcom had been blocked.
The VMware shareholder's value though probably went up from that deal.
Yet there are plenty of examples of monopoly or near monopoly businesses getting their butts handed to them by startups.
Yahoo, BlackBerry, Kodak, Nokia, Sears.
So it’s clearly not “once you have a monopoly it’s game over for competition”. Markets aren’t stagnant, and as they change it provides opportunities for new competitors to do that “new thing” better than the monopolies.
And how many businesses do you estimate have been killed or eliminated because of unchecked m&a? Expanding the data set to include non-tech industries indicates strongly that it's not always the case that a big monopoly will eventually fail. Healthcare for example is filled with instances of bigger companies acquiring smaller ones and killing the competition to their product, a quick Google search will show you that.
Can you give me a specific example? Last I checked no insurer has more than 30% market share.
With the exception of yahoo (which is still a large company I should note), None of those examples were killed by a start up competitor. They were killed by foundational technology shifts that were orthogonal to the industry. Yahoo, is the closest example with google, but kind of proves Kahns point in that a competitor they tried to buy—-google—- refused to be acquired and then innovated them out of the market. Imagine how much worse the world would have been if yahoo bought google and mothballed it. Blackberry and Kodak were both put out of business by apple which was a computer and software company not a phone or camera company. Sears was bought buy Edward Lampert, an private equity bro that fancied himself the next Warren Buffet but in the end gutted it by selling it for parts to keep the cash for himself
> They were killed by foundational technology shifts that were orthogonal to the industry.
That's the point. Markets aren't stagnant. When changes happen, monopolies are susceptible to being unseated.
This is very wrong because monopolies destroy the very competitive and innovative landscape that is necessary to unseat them, and in the process impose massive social harm in the form of higher prices, worse products or services, increased concentration of wealth, reduced employee compensation, political corruption.
America experienced uncheck monopolies during the Gilded Age. Most thought that rapid industrialization, economic growth, and technological advances would have resulted in enough competition to create an economic utopia. Instead, even while the United States experienced a surge in wealth and prosperity, the underlying reality of political corruption, social inequality, and labor unrest created a nasty, brutish existence that was only solved when the Trust Busting Roosevelt's transformed America by breaking up the monopolies.
If you like free market capitalism you can't be in favor of monopolies, and if you dont want monopolies you need STRONG enforcement of antitrust M&A regulation. We are well past a correction since Regan stopped antitrust enforcement. I would argue that all of our political chaos since the 1980's can be traced primarily back to that single decision.
Lina claims she let the vast majority of deals through. I wonder what the data shows.
>While her aggressive stance led to intense criticism from corners of the tech industry, she defended her approach by saying that only a tiny percentage of deals received “a second look”
Even if "a tiny percentage" is 1%, that's a huge amount more than a normal FTC.
Except the majority of the Figma IPO was captured by banks due to it's severe pop. So while everyone made a lot of money, the overwhelming majority went to the underwriters [0].
The founding team at Figma would have gotten a similar amount much sooner if the acquisition was let thru OR if the underwriters didn't screw them over by underpricing at $33.
[0] - https://pitchbook.com/news/articles/figma-ipo-pop-spotlight-...
The IPO "pop" is not captured by banks: it's captured by the banks customers that pre-buy at the IPO price.
Basically, before an IPO, the underwriters take the company on a "roadshow" in which they pitch the IPO to potential buyers.
There's a hierarchy of these: the best are very large buyers that place large orders and trade seldom. Pensions, sovereign wealth funds, etc.
Those buyers then make offers ("I'll buy 50MM at $100"), which the bank uses to set the IPO price. The bank then gives them an allocation.
If you're a high (10MM+) net worth individual that banks with one of the underwriters, you can often get an allocation in an IPO. The richer you are, the more of an allocation you can get.
When an IPO pops, it's these people that get the benefit.
The benefit for the company is that the stock is owned by prime people the bank selected: you crucially _don't_ want to just sell to the highest bidder if they are going to dump the stock immediately after the pop (or that's the theory, at least). They have stable shareholders with a vision aligned with management.
The benefit to the bank is that they get to reward their customers with access to profitable trades--but the bank itself does not profit.
Seems undemocratic. Everyday folks can’t buy even though they would want to
Capital and Finance was never democratic. And I doubt it ever will. It’s literally those with more money have more power.
It’s just a bulk discount: everyday folks simply can’t be relied upon to buy hundreds of millions of dollars the stuff and that’s what the company is selling. Little fish can buy in, but only if the big fish provide liquidity in the first place! In other words: someone needs to be paid to sell it and big buyers need to be incentivized to buy it.
Ultimately the IPO price is driven by supply and demand with a limited supply: price will go down (a bit) when the lockout period ends and more supply comes online.
Saying "big buyers need to be incentivized to buy it" is just another way of saying it's undemocratic. The democratic version would be that there are no big buyers and your IPO gets however much money it gets from small investors and that's it. There don't need to be any companies with a $45 billion IPO.
I feel like complaining about things being "undemocratic" is like complaining about a software system's architecture that "it's not microservices". Not everything needs to be - and some things would be actively harmed by making them "democratic". I wouldn't want drug approval to be a democratic process.
Raising capital can be done "democratically" if the founders want to. They can use direct listing. IPO is an option, not an obligation.
> Not everything needs to be
Not everything, sure. But this one more than most, needs to be democratic. If you don't see the wealth inequality today in which the 1% own 50% of the worlds wealth, and you don't see where this is inevitably going to lead, then I don't know what to say.
Stay woke at r/latestagecapitalism
I'm pretty critical of how late capitalism is shaping up (I pretty routinely get called a leftist radical here on Hacker News which is increasingly Thiel-Aligned Psycho News).
With that said, lots of options exist for a company like Figma doing a public listing: when you're the belle of the ball you can list how you want. Google did a pretty unconventional Dutch Auction thing IIRC.
In this instance the Figma folks decided they wanted an IPO pop and had the underwriters set it up that way. They were paying some premium (to institutional investors) to get one of many intangibles that are attached to that (like a bunch of press about how hot the stock is).
In a world where it was a no-brainer that this was going to be another mediocre Adobe product line rent seeking from here to the horizon, I'm pretty OK with how this turned out.
And when Google did it, it was considered a disaster
Because when Google did it, it was a disaster?
https://www.cnbc.com/2014/08/18/pisani-googles-ipo-was-a-dis...
And “rent seeking” isn’t “The company is selling a product or service they make in a manner I don’t agree with”
> democratic version would be that there are no big buyers and your IPO gets however much money it gets from small investors and that's it
…you need money to be a small investor.
It makes no sense in the digital age. It costs almost nothing to solicit demand curves. And you can still do wasteful roadshows and presentations for special buyers.
Why can't a bunch of little fish provide the liquidity? Especially since they can provide more without the bulk discount?
It is, it is yet another of the constructions that increases inequality and makes rich people richer.
Yes, an ipo is volatile, it should be! You are literally pricing a company.
Sigh, regardless, Thisnis again one of these ways where free markets are being smashed by monopolistic behavior - you can only be a part of the game if you already have enough.
I thought IPOs don‘t generally pop though this one has?
You can buy VTI which takes about 7% allocation in every IPO, but I heard there is research by some folks at Harvard and practiced by dimensional fund advisors‘ funds that buying IPOs ~two years later is slightly better?
It is undemocratic, but it is capitalistic.
Even Adam Smith would argue that monopolies are bad - the fact that you are deacriminated upon to buy capital is the direct opposite of capitalism.
I don't know why you're getting downvoted. You clearly read Smith and the downvoters clearly didn't. An Inquiry Into the Nature and Causes of The Wealth of Nations is like an anti-rentier pamphlet in most places.
Ignore the haters, keep being right about books.
Adam Smith meant free from rentiers (unearned income) when talking about "free markets". The term was appropriated by the neoliberals to mean free from government and ignored the original meaning.
Not all IPOs pop
What makes it undemocratic?
What do you propose? A speculative free-for-all like with crypto meme coins?
This is actually a funny thing for risk mgmt because a trader will say "I want a bajillion shares in this IPO", risk notice it and say "a bajillion!?" not realising that ask for 10x more than you think you'll get allocated.
You also sometimes need to tactically trade with worse brokers so they will feel nicer during an IPO.
Why don’t more IPOs do an auction to set the price? Trying to determine the “right” price ahead of time seems like a really bad way to do things.
An auction for IPO price is much easier to manipulate and can lead to much volatility. Pre-allocating to the entities that are not expected to sell quickly or participate in pump-and-dumps (pension funds, etc.) is considered a better long term strategy for the company, as the sister comment says.
Didn't Google solve this with their dutch auction?
Yes. But Google being Google it got top notch planning advice from world class auction experts that Goldman pulled in to advise them on the IPO.
Most companies without such expert advice could step into some pitfalls. Just a guess, I am not an expert, but if my company were doing an IPO I would prefer it not to play financial games to eke out a percent of IPO price and instead focus on long term price stability to become a solid stock. My 2c.
Figma's stock quadripled in price from 33 to whatever it is now. Not saying it's good or bad, just that those gains must have been nice with effort akin to staring spreadsheets a while and babbling in meetings.
What makes an auction easier to manipulate or more volatile than a stock traded on the market?
Likely nothing once the stock is actually trading with some history. But for initial placement wall-street-bets action could be very disruptive.
The company wants to avoid sharp drops after the IPO, as those encourage employees to get out ASAP, which increases the volatility and discourages large, stable investors.
Price discovery is impossible to do except on the market. You can call up everyone you know and ask them, but there are limits to forecasting.
We all knew the Switch 2 MSRP, but we had to wait for launch to see the eBay Buy it Now price.
In this case, the banks are Best Buy. They sold out quickly! Other market players are eBay sellers: the ones that knew what they were doing made a killing selling to consumers.
People like it when an IPO pops. It's a good news story and it makes all the banks who participated happy. If it was priced perfectly it'd get reported as the stock was flat, if it's a bit underpriced then you get headlines as the hot new stock that's taking off
Are headlines really worth billions of dollars?
I think Altman or Musk might think they are. At least they are sometimes.