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Given the lack of successful exits over the past few years, there has been a lot of talk about the broken Silicon Valley venture capital model. However, as shown by Figma’s huge hit flotation last week on the New York Stock Exchange, the standard VC playbook can work as it was written.
The VC playbook is as follows:
Stage 1: Find great computer science students with instinctive entrepreneurial drives and neat business ideas.
Stage 2: The award said the student said a tiel fellowship to drop out of college.
Stage 3: Inject VC Money into startups to develop attractive products and expand your business at a fast pace.
Stage 4: Open the company and generate epic returns for the original investors.
Figma’s story wasn’t that simple, but it certainly rhymes.
Figma co-founder and CEO Dylan Field is a Brown University student and was awarded the $100,000 Thiel Award. Alongside fellow student Evan Wallace, he co-founded Figma in 2012, gaining enthusiastic follow-up among developers, writing browser-based design software that inhaled hundreds of millions of VC dollars.
Now, in 33 years, the large sector is excited by the market response to Figma’s buoyancy and the opportunity to be created as a public company. “Now it’s time to write the next chapter of Figma,” he says.
Wall Street investment bankers are already salivating with the prospect of bringing more startups to the market. Several other late stage, VC-backed high-tech companies, including Canva, Databricks, Midjourney, SpaceX, Klarna, Revolut and Stripe, have grown and made public behind the easy private market funding. However, Field suspects that more startups could now charge. “I can definitely see that conversation start, and I think it’s good for people to see that it’s possible,” he says.
Several major VC companies, including Index Ventures, Greylock Partners, Kleiner Perkins and Sequoia Capital, are making great returns on their investments in Figma and are trying to cash out elsewhere.
Figma’s biggest VC backer is Index, which has invested a total of $86.5 million and holds more than $6 billion in stake in public companies. VC companies are also doing well in two other portfolio companies. At Data Annotation Startup Scale AI, Meta purchased a 49% stake at a valuation of $29 billion. Israeli cybersecurity company WIZ is currently eligible for a $32 billion acquisition offer from Alphabet. On paper, the seven investment partners at Index have generated more than $11 billion for the company from these three transactions, highlighting the great benefits they can earn from successfully applying VC Playbooks.
Index partner Danny Limmer, who first met the field when he was an 18-year-old intern, says that the ability to utilize artificial intelligence allows startups to grow much faster than before. It could ultimately lead to a long line of high quality IPOs. “A great company can be published in any market,” he says. “That being said, there’s definitely a lot of appetite from Wall Street for new issues.”
Institutional investors in several other over-expanded VC funds are desperate to get them back more money. They will certainly be looking for an exit, but other open market investors are keen to increase their exposure to trade-type technology stocks.
“My message to all venture capitalists is: It’s time now. Please open your company,” Miles Diefenbach, the investment director for donations at Carnegie Mellon University, recently told the 20VC podcast.
However, some institutional investors will remain wary of rushing to new listings given the poor performance of many startups that came to mind in 2021. At the time, some VCs were rushing to exploit the foaming market by “pumping and dumping” to unsuspecting investors, particularly through acquisition companies with special purpose. Fund managers could be more discriminatory this time.
Furthermore, given how quickly technology is evolving, investors question one day whether increasing use of AI, which accelerates startup growth, could potentially incinerate business models. Figma has yet to prove that, like all software startups emerging today, it is not a victim, but a beneficiary of AI conversion.
john.thornhill@ft.com
