Evaluating Figma’s S-1
Lessons for Early-Stage Investing
Figma – the collaborative design SaaS company – recently filed its S-1 in preparation for an IPO, offering a detailed look into its financial performance, product strategy, and market position. This filing comes after a planned $20 billion acquisition by Adobe was scrapped due to regulatory pushback, leaving Figma to continue its rapid growth independently. For early-stage startups, Figma’s S-1 is a goldmine of insights. By examining Figma’s trajectory – from a startup disrupting a dominant incumbent to a profitable, scaling business – we can draw valuable lessons for early-stage investment strategy. Below, we break down key aspects of Figma’s S-1 (revenue growth, product strategy, go-to-market, competitive risks, etc.) and highlight actionable takeaways for investors in our target sectors.
Financial Highlights from Figma’s S-1
Figma’s financials underscore a rare combination of high growth and efficiency for a SaaS company at scale. Key metrics from the S-1 include:
Surging Revenue: Figma generated $749 million in revenue in 2024, up 48% year-over-year (from ~$505M in 2023). Growth remained strong into 2025 – in Q1 2025 Figma posted $228.2 million in revenue, a 46% YoY increase from $156.2M in Q1 2024. This puts Figma on a run-rate (ARR) of roughly $900M+ entering the IPO. Such growth far outpaces legacy competitors (for context, Figma is ~3% the size of Adobe’s revenue but growing ~4× faster).
Profitability & Margins: Unusually for a high-growth startup, Figma is already profitable on an operating basis. It recorded an operating margin of ~17% in Q1 2025 and net income of ~$45M for that quarter (tripling from $13.5M a year prior) Gross margins are excellent at ~88–91%, typical of an efficient software business. Figma did show a net loss of $732M in FY2024 due to a one-time stock-based compensation expense related to the terminated Adobe deal. Excluding that anomaly, the company has demonstrated “real and consistent profitability” in recent periods. In fact, by Q4 2024 and Q1 2025, Figma was back to posting net profits.
Retention & Expansion: Figma boasts best-in-class customer retention metrics. Net Dollar Retention (NDR) was 134% in 2024 and 132% as of Q1 2025, meaning existing customers on average expand their spend by ~32%+ each year – a strong indicator of an effective land-and-expand model. Gross retention is also high (96% for large customers), indicating very low churn for a product that has become mission-critical in many organizations. Additionally, Figma has 13+ million monthly active users, and notably about two-thirds of these users are non-designers (with ~30% being software developers). Such breadth of usage beyond core designers underscores Figma’s expansion into a broader collaboration platform within companies.
Efficiency (Rule of 40 & Sales Productivity): Combining growth and profitability, Figma scores about 63 on the “Rule of 40” (46% YoY growth + 17% operating margin) – well above the SaaS benchmark of 40. This reflects a rare balance of aggressive growth and fiscal discipline. Sales efficiency is especially striking: Figma’s sales & marketing spend is so effective that it generated ~$1 of new gross profit for every $1 in S&M expense in 2023 – a 1.0 ratio that is best-in-class (compare to Adobe’s ~0.39, or typical enterprise software in the 0.5–0.7 range). This efficiency stems from product-led growth (PLG) where the product largely “sells itself” through viral adoption, reducing reliance on heavy sales expenditure.
Financial Strength: The S-1 shows $463M in cash (Q1 2025) and essentially no debt on Figma’s balance sheet. In fact, the company noted it has no substantial borrowings (any revolving credit usage is minimal). Contributing to this war chest was a $1.0B termination fee Adobe paid when the acquisition fell through, which gave Figma a cash boost in late 2023. With healthy cash and positive free cash flow, Figma doesn’t need IPO proceeds to fund operations – instead, IPO funds may go toward repaying a credit facility draw for tax obligations and fueling strategic investments. This strong capital position means Figma can invest in growth (or acquisitions) without financial strain.
In summary, Figma’s financial profile is that of a “unicorn” SaaS that checks all the boxes: hyper-growth, high gross margins, improving operating leverage, and even bottom-line profitability. These qualities are garnering significant IPO buzz, with analysts predicting a valuation in the $20–25B range (roughly ~20× forward revenue) – effectively matching or exceeding Adobe’s prior $20B offer.
Product Strategy and Go-to-Market (PLG in Action)
Figma’s S-1 paints the picture of a product-led growth powerhouse. The company’s rise was driven by a bottom-up adoption model that later smartly intertwined with enterprise sales:
Viral Adoption & Network Effects: Figma’s core product – a cloud-based, real-time collaborative design tool – naturally lends itself to viral growth. Designers start using it for free, then invite colleagues (product managers, developers, etc.) into their design files, spreading usage within an organization organically. As CEO Dylan Field recounts, the “power of the URL” (sharing a link to a design) and an easy-to-use, browser-based platform fueled rapid user-to-user adoption and community-driven growth. This grassroots traction meant Figma didn’t rely on top-down mandates; rather, teams adopted it because it made collaboration easier, essentially selling itself inside companies. By the time Figma introduced paid plans, many users were already hooked, which drove smooth conversions from the free tier.
Freemium to Enterprise Upsell: The company’s monetization is classic PLG SaaS. It offers a free “Starter” tier to encourage trial and individual use, then graduated plans (Professional, Organization, Enterprise) that unlock more functionality for teams. As of Q1 2025, 70% of Figma’s revenue comes from the higher-tier Organization and Enterprise plans – indicating that initial free/pro users have successfully converted into large paying deployments. Figma nurtured this by eventually building a direct sales force: notably, they hired the first sales rep in 2018 (after a few years of pure product-led growth) to target larger customers and formalize the upgrade path. This dual motion – PLG at the entry level, sales-assisted upsell at the top – proved powerful. The S-1 reveals Figma had 40+ customers paying over $1 million in ARR as of March 2025, and an even larger base of 1,000+ customers paying $100k+ annually. Impressively, roughly 70% of enterprise deals originated from an individual user on a lower-tier plan (e.g. a single designer on a Professional plan that spread virally). This land-and-expand dynamic validates the PLG model: a product that gains grassroots love can later be upsold to company-wide deployments.
Expanding Product Suite: While Figma started with a core design tool, it has strategically broadened its platform to increase its value across organizations. The company introduced products like FigJam (for collaborative whiteboarding), Dev Mode (for developer hand-off), Figma Slides (presentation tools for product teams), Figma Sites (to turn designs into live websites), and more. Many of these are new or in beta, but they signal Figma’s ambition to be an end-to-end platform for product design and collaboration. Notably, the S-1 reports that 76% of customers use two or more Figma products as of Q1 2025, up from 64% a year prior. This high multi-product adoption suggests effective cross-selling and a growing footprint within customers. Each new module (design, whiteboard, slides, prototyping, etc.) increases Figma’s stickiness and total addressable market.
Innovative Monetization (Seats & Roles): Figma not only expanded what it offers, but also how it charges. Originally, Figma sold per-editor seats for designers. Recently, it introduced role-based seat types to monetize other collaborators who were previously free or light users. For example, a “Dev Seat” gives engineers access to Dev Mode and Code features, a “Content Seat” for marketers to use Slides and content tools, a “Collab Seat” for non-design collaborators, etc.. These tailored offerings allow Figma to convert what were once free viewers or commenters into paying users at a price point appropriate to their usage. The impact is significant – developers now make up ~30% of Figma’s monthly active users, and many are monetized via these new Dev seats. In short, Figma found a clever way to extend monetization beyond designers, without alienating the casual users (who still have a free viewer option). This pricing evolution is a useful case study in how a SaaS company can grow ARPU by segmenting user roles.
Community & Ecosystem: Another pillar of Figma’s strategy is its vibrant user community and plugin ecosystem. The company has cultivated over 10,000 community-built plugins and widgets on top of Figma’s API. This third-party developer ecosystem extends Figma’s functionality (similar to how Adobe had a plugin community) and increases switching costs for users who rely on specialized plugins – effectively making Figma the platform for design workflows. Additionally, Figma runs robust community programs: it supports 200+ “Friends of Figma” chapters globally and hosts an annual user conference (“Config”) that has become a key event in the design/product community. By investing in community, Figma turned its user base into evangelists. This grassroot enthusiasm not only fuels product-led growth (word-of-mouth referrals) but also constitutes a defensive moat – a passionate community is hard for competitors to simply buy or copy. Figma’s approach here resembles what other successful developer-focused companies have done (e.g. Atlassian, GitLab, etc., which also leveraged communities and evangelism).
Bottom line: Figma’s go-to-market is a masterclass in PLG complemented by enterprise sales. Early widespread adoption (through a free, inviting product) built a beachhead in organizations, and a sales team later converted that into large contracts. The expansion of product offerings and thoughtful pricing ensured that Figma could grow within accounts (more users, more use cases) and capture increasing value over time. For early-stage SaaS founders, this highlights the importance of strong product-market fit and user love before heavy sales spending – but also the eventual need to scale up monetization through packaging and sales when the time is right.
Market Position and Competitive Landscape
Figma’s S-1 doesn’t shy away from the competitive context. The company operates in a huge market (digital design and collaboration software) and has achieved a category-defining position, but it also faces challenges as it grows:
Disrupting an Incumbent: Figma’s rise is often framed against Adobe, which long dominated design software (with Photoshop, Illustrator, etc.). Remarkably, Figma succeeded by introducing a new paradigm (cloud-based, real-time collaborative design) in a space that Adobe had been slow to modernize. This allowed Figma to differentiate rather than go head-to-head on Adobe’s turf. The result: within a decade, Figma became enough of a threat that Adobe attempted to buy it for $20B. Even though Figma’s revenue was only ~3% of Adobe’s, its growth and innovation pressured Adobe to catch up (Adobe launched XD and other collab features). This story validates that a focused startup with a better user experience and modern delivery (browser SaaS vs. legacy desktop apps) can carve out a significant market, even under an incumbent’s shadow.
Current Competitive Landscape: Today, real-time collaboration and cloud software are the norm, meaning Figma’s head start has inspired many competitors. The S-1 identifies direct competitors or adjacent threats such as Adobe (which still has legacy tools and its own Figma-like offerings), Microsoft (which has design whiteboarding tools and could integrate design into its suite), Canva (popular for lightweight design, expanding into team collaboration), Miro/Notion (which cover adjacent collaboration spaces), and even new startups. For example, Canva and Miro have strengths in ease-of-use and could converge into Figma’s territory from different angles. The competitive risk is that features like multiplayer editing, once Figma’s differentiator, are now standard, so Figma must continue innovating to stay ahead.
AI as Both Opportunity and Threat: A notable theme in the S-1 is the impact of artificial intelligence. Figma is investing heavily in AI to enhance its platform – Dylan Field specifically calls out that they will “double down” on AI even if it impacts short-term efficiency. Possible AI features include generative design suggestions, automated prototyping, or code generation from designs (areas hinted by Figma’s beta products like Figma Make and others). However, AI also poses a competitive threat: new AI-powered design tools (startups leveraging generative AI for design/code) are emerging fast. TechCrunch notes upstart AI design apps (one example named “Lovable”) that target Figma’s market. Because AI can lower the skill barrier for creating designs or interfaces, it could enable alternative workflows that bypass Figma. Figma acknowledges this risk: if they fail to keep their product “competitive as new AI technologies are developed,” users might shift to those new solutions. In essence, AI is a race – Figma is trying to incorporate AI to enrich its platform before an AI-native competitor gains traction.
Market Saturation vs. Expansion: Figma has achieved widespread penetration in its core market. According to the S-1, an astonishing 95% of Fortune 500 companies have some Figma usage. However, many of those may still be on small team plans or free usage. Figma has only ~1,000 customers paying over $100k/year, which means there’s room to grow accounts within those large enterprises (turning more of that widespread usage into enterprise-wide contracts). A risk is that Figma eventually saturates the design-team market – nearly every major company’s design org is already a user – so future growth depends on expanding use cases (into engineering, product, marketing teams, etc. as noted) and upselling existing customers to higher tiers. The introduction of new products (Slides, whiteboards, etc.) and monetizing more roles is directly aimed at this expansion. Another area of growth is international markets: about 85% of Figma’s users are outside the U.S., yet only ~53% of revenue comes from outside the U.S.. This gap suggests Figma could drive more non-U.S. sales with targeted go-to-market efforts. The company explicitly calls out global expansion as a core growth pillar going forward. For an investor, this highlights a relatively untapped lever – Figma already has worldwide adoption, so converting that into paid subscriptions abroad (with localized sales, pricing, support) is a logical next step.
Defensibility: As Figma grows, maintaining its moat is an ongoing concern. Its primary defenses today are product excellence, brand/community loyalty, and an integrated platform that would be hard to rip out once a whole organization is onboarded. The plugin ecosystem and file format also create switching costs (users build workflows and libraries in Figma). But the S-1 risk factors note that features can be copied, and advantages can erode. Figma’s rapid innovation (multiple new products in pipeline) is partly to stay ahead of the pack. There’s also a mention of potential “seat fatigue” – as Figma tries to sell seats to many roles, will CFOs push back on paying for yet another SaaS seat for each employee? Pricing strategy will need to evolve (the S-1 hints at exploring non-seat-based pricing for certain new offerings) to ensure customers continue to see ROI in broad deployment.
In summary, Figma’s market position is extremely strong (clear leader in modern design collaboration), but the company must keep executing on innovation and expansion. The IPO investors will be betting that Figma can leverage its brand and PLG engine to enter new product categories and perhaps even define a new “operating system for product design” before competitors catch up. For early-stage observers, Figma’s competitive story reinforces how important continuous innovation and first-mover advantage are in fast-moving software markets.
Key SaaS Metrics and Business Efficiency
The S-1 provides a look at Figma’s SaaS “engine”, and it’s firing on all cylinders. A few standout metrics and what they indicate:
Net Dollar Retention ~130%: As mentioned, Figma’s NDR of ~132% means the company achieves significant “expand” revenue from its customer base. This figure is top-tier among SaaS companies – it implies the product generates increasing value for customers over time (upselling more seats, upgrading tiers, adopting new modules), offsetting any downsells or churn. High NDR is especially notable given Figma’s mix of self-serve and enterprise customers; it shows even self-serve teams often grow into larger deployments. For an early-stage SaaS startup, this underscores the importance of a product that can land-and-expand naturally. If users truly love the product, usage will deepen and more teams will join, leading to expansion revenue with relatively low friction. Figma’s experience (NDR >130%) is a benchmark to aspire to, as it greatly accelerates revenue growth.
Mass User Adoption (MAUs): Figma reported over 13 million Monthly Active Users on its platform. This number is huge for a B2B-focused product and speaks to how Figma straddles the line between consumer-like adoption and enterprise deployment. Many of these MAUs are from the free tier or occasional collaborators, but they form a pipeline for conversion. Interestingly, the majority of Figma’s users are not traditional designers – about 2/3 are other roles (PMs, engineers, marketers, etc.), reflecting the product’s cross-functional appeal. This broad adoption is what gives Figma strong leverage in enterprise deals: the design team might be the champion, but real value comes when the whole product development team is engaged on Figma. Startups that can build such multi-stakeholder usage (think of tools like Notion or Slack that spread across orgs) have a better shot at high retention and upsells.
Gross Margins ~88–91%: Figma’s ~88% gross margin is typical of efficient software delivered via the cloud – it suggests low cost of serving each additional user. This high margin, combined with the viral growth model, means each customer added is very profitable after accounting for fixed R&D costs. High gross margins are common in SaaS, but Figma’s are especially solid even as it offers generous free tiers (showing that the free users aren’t overly burdensome to support relative to the paying user revenues). For early companies, focusing on software or platform business models that can achieve such margins is attractive for scalability.
Sales & Marketing vs. R&D Spend: A striking point noted by analyst Tomasz Tunguz is that Figma’s R&D expense nearly equals its Sales & Marketing expense. In many enterprise SaaS businesses, S&M spend far exceeds R&D, as companies pour money into acquiring customers. Figma’s parity here reflects a PLG-centric model: the product (and engineering behind it) serves as the primary growth driver, so they invest heavily in R&D to keep the product quality and features ahead, while S&M can be relatively lower since the community and viral loops do a lot of the work. The result is a best-in-class sales efficiency of ~1.0 (each $1 in S&M yields $1 in new gross profit), which is rare. This efficiency implies that Figma has found a sustainable formula for growth – it isn’t burning cash inefficiently to buy revenue. For startups, this highlights an ideal to strive for: product-led acquisition can significantly lower customer acquisition cost, allowing more resources to go into product development. It may not be achievable in every sector (e.g., some fintech or deep B2B products will require heavier sales early), but Figma shows what’s possible with the right approach.
Operating Leverage: As Figma scales, it is achieving economies of scale. The S-1 shows that in Q1 2025, expenses in R&D, S&M, and G&A were growing at 24–33% year-over-year, all slower than revenue’s 46% growth. This means the company is gaining operating leverage – fixed costs are being spread over a larger revenue base, improving margins. It’s how Figma turned profitable even while still growing fast. For investors evaluating younger companies, a good sign is when revenue starts to outpace expense growth as the company finds efficiencies (usually post-product/market fit). Figma is a case where after heavy early investment (it spent years in R&D before revenue), the economics now are very favorable.
In short, Figma’s metrics depict a high-performance SaaS business: strong retention, broad usage, high margins, and efficient growth. It’s the kind of profile that public market investors reward with premium valuations, and a profile that early-stage investors dream their portfolio companies will one day achieve.
Financial Strength and IPO Outlook
Figma’s decision to go public (after remaining private through the Adobe merger saga) signals confidence in its financial strength and future. Here are some highlights related to its IPO outlook and what it means:
IPO Readiness & Scale: With annual revenue now around $800M+ and likely crossing $1B in the next year, Figma is entering the public markets at a scale rarely seen for a first-time software IPO. Its growth (46-48% YoY) and profitability make it stand out in an IPO class that has been sparse for tech in recent years. This offering could raise an estimated $1.5B in proceeds and is anticipated to be one of 2025’s biggest tech IPOs. The S-1 didn’t list a target price yet, but many expect Figma’s valuation to at least match the $20B that Adobe had offered in 2022, if not significantly exceed it. Some analyses using SaaS multiples predict an IPO market cap in the low-$20B range (e.g. ~$21B by one model), while others argue Figma could justify $25B+ given its metrics. In any case, the public market will be valuing Figma as a “generational” company, not just another SaaS IPO. This is a reminder that the payoff for getting to category leadership is huge – early investors (Index Ventures, Greylock, Kleiner Perkins, Sequoia, and others are major backers) are poised to see massive returns, with multiple investors each owning stakes worth over a billion dollars at the expected valuation.
Use of Proceeds and Strategy: Figma’s filing indicates that it doesn’t urgently need cash to fund operations (given positive cash flow). A portion of IPO proceeds is earmarked to repay a revolving credit facility draw used for tax obligations – a rather mundane use – and beyond that, the funds likely provide flexibility for strategic moves. In his founder’s letter, Dylan Field emphasizes a willingness to “take big swings” on investing in the platform or pursuing M&A even if it might hurt short-term profitability. This suggests Figma could use its war chest to acquire complementary products or technology (perhaps in AI or adjacent collaboration tools) or to aggressively expand features. For investors, this messaging is a double-edged sword: it signals visionary ambition (which can lead to creating the next big multi-product platform), but it also cautions that Figma might spend heavily in ways that “may not seem immediately rational” in the pursuit of long-term dominance. Essentially, Figma is telling Wall Street it will optimize for long-term product leadership over short-term earnings – a stance reminiscent of other product-centric companies post-IPO.
Governance – Founder Control: The S-1 reveals a dual-class share structure where Class B shares carry 15:1 voting power, and CEO Dylan Field will retain a very large portion of voting control (around 75% of voting rights pre-IPO). This is enabled in part by Field holding proxy for his co-founder’s shares as well. Such founder control is common among tech IPOs (to let founders steer the company vision without external interference) but is noteworthy for investors to be aware of. It means post-IPO shareholders will have little say if they disagree with Field’s strategic decisions. However, given Figma’s track record, many might be comfortable trusting the founder’s guidance. For early-stage investing perspective, seeing Figma’s structure underscores how backing strong, mission-driven founders can lead to companies where those founders maintain significant control into the public stage – which can be positive for executing a long-term vision (as Figma clearly has).
Market Reception: If Figma’s IPO is successful, it could reignite the market for high-growth tech IPOs after a relative drought. This has implications for early-stage investors: public market validation of a PLG, design/AI-focused company at a high multiple can trickle down to robust valuations and optimism in adjacent spaces (e.g., startups in collaboration software, productivity tools, or vertical SaaS might see increased investor interest). It also sets a benchmark for what “great” looks like in terms of metrics when aiming for an IPO. Startups may cite Figma as an aspirational comparison for the blend of growth and efficiency.
In summary, Figma is stepping into the public arena from a position of strength – high growth, profitability, ample cash, and a visionary game plan. Its S-1 story is one of a company that did almost everything right in scaling a modern SaaS business. This makes it an excellent case study for early-stage investors and founders alike. Below, we distill the key lessons from Figma’s journey and S-1 that can inform our early-stage investment strategy.
Key Lessons and Actionable Insights
Figma’s path – from a scrappy startup in 2012 to a $20B+ IPO candidate in 2025 – offers rich lessons for investing in early-stage B2B SaaS, AI, fintech, and marketplace companies. Here are key takeaways and how they can shape your investing approach:
Product-Led Growth Drives Efficient Scale: Figma is a textbook example of product-led growth. It achieved massive adoption with minimal early marketing spend by building a product that users love and share organically.
Insight: When evaluating startups (especially in SaaS and AI tools), look for signs of organic traction and virality – e.g. user-to-user referral, community buzz, high user engagement even without a big sales push. If early users are avid evangelists (as designers were for Figma), the company can scale efficiently.
Prioritize startups with a compelling product user experience and a community or bottoms-up growth dynamic. In sectors like fintech or developer tools (AI/ML platforms, etc.), this might be indicated by strong developer adoption or word-of-mouth in niche communities. Such PLG dynamics can lead to lower customer acquisition costs and better long-term retention.
Land-and-Expand Beats Big Upfront Deals: Figma’s success came from landing small and expanding big. A single designer’s adoption could lead to a company-wide deployment worth six or seven figures annually.
Lesson: The land-and-expand model is incredibly powerful in B2B: get in early with a small use case, prove value, then grow within the account. This often outperforms trying to sell a huge contract from day one.
Action: When investing in enterprise SaaS at seed stage, assess whether the product has a quick entry point (e.g. a free trial, low-friction integration, or individual user utility) and a pathway to expand (additional features for larger teams, enterprise security/admin features, etc.). Coach portfolio companies to remove friction for initial users (even if via free tiers) and instrument their product to identify internal champions who can drive upsell. Figma’s example shows that a passionate user base will naturally pull the product deeper into organizations – a much cheaper and faster route than pure top-down sales. Value startups that focus on user delight and usage depth early on, not just those touting big contract pipelines.
Balance PLG with Enterprise Sales at the Right Time: While Figma rode PLG to rapid growth, it also knew when to add a sales force (starting in 2018) to capture enterprise value.
Lesson: Even the best PLG companies often need to complement bottom-up adoption with top-down sales as they mature – free or small-team usage must be converted into organization-wide standardization.
Action: In early-stage investments, inquire about the founders’ go-to-market evolution plan. If a startup is purely self-serve now, do they envision a sales-assisted model later for larger clients? Conversely, if they start sales-heavy, is there any viral or self-serve aspect to reduce sales friction? Guide founders to think about this balance: Figma’s case suggests hiring experienced salespeople and introducing enterprise-tier features at the appropriate growth stage can unlock huge revenue (70% of Figma’s revenue is now from enterprise/organization plans). In practice, this means backing companies that can do both: build community-driven adoption and execute a targeted enterprise selling strategy when the product has proven its value.
Invest in Community and Ecosystem Early: Figma didn’t just build a product, it built a community and ecosystem around it – from Friends of Figma user groups to a rich plugin API that 3rd parties extend. This created network effects and loyalty beyond the software itself.
Lesson: A strong user community can be a moat; users who are part of a movement or rely on a network of extensions are less likely to churn. Also, community-led growth can amplify your reach (each community event or plugin built by users is effectively free marketing).
Action: Encourage early-stage startups to engage their user base deeply: think hackathons, user forums, ambassador programs, integrations, open-source contributions – tactics fitting their domain. For instance, an AI tool might foster a developer community sharing models or prompts; a fintech API might build a developer evangelism program (similar to how Stripe did). When diligencing companies, look at signs of an emerging community (even a small but passionate one). This could be as simple as active discourse on Slack/Discord or user-generated content around the product. Those are green flags that the startup can cultivate a following that greatly multiplies its marketing efforts. Figma’s case shows community-building isn’t just feel-good: it translated into a developer ecosystem (10k+ plugins) and brand prominence in its space.
Emerging Tech as an Edge (but also Threat): Figma’s embrace of AI in its product roadmap highlights how important it is for startups to stay ahead of tech trends. At the same time, new tech (like generative AI) can enable new competitors to arise quickly.
Lesson: The best startups are proactive about integrating transformative technologies to enhance their offering, rather than reactive. Figma is doubling down on AI features (even at a cost) to avoid being outflanked.
Action: Favor teams that are forward-thinking about technology. This doesn’t mean chasing every hype wave, but founders should be able to articulate how AI (or other emerging tech like blockchain, etc., depending on sector) could either enhance their product or disrupt their model. We should ask: are they experimenting with new capabilities? Do they have a plan if a new tech radically changes customer expectations? For a fintech startup, this might be how they’ll use AI for better risk modeling or customer service; for a marketplace, perhaps AI to improve matching or reduce operational costs. The key insight from Figma is that standing still is not an option – continuous innovation is necessary to maintain a lead, and we want to back founders who embody that mentality.
Don’t Fear Incumbent Markets if There’s a Paradigm Shift: Initially, investing in a company to take on Adobe could have seemed daunting – Adobe is a giant with deep pockets. But Figma exploited a paradigm shift (cloud collaboration) that Adobe was slow to respond to, and that made all the difference.
Lesson: Huge markets dominated by incumbents can be ripe for disruption if a startup has a fundamentally different approach or technology advantage. In Figma’s case, Adobe’s installed software and single-player mode gave way to Figma’s browser-based multi-player approach.
Action: When evaluating startups in spaces with big established players (be it large banks in fintech, or big tech in enterprise software, etc.), look for a 10× better experience or technology leap that incumbents struggle with. This could be a new distribution model (e.g. bottom-up vs. enterprise sales), a new technology (AI automation vs. manual processes), or a new business model (subscription vs. licensing, decentralized vs. centralized, etc.). If that leap exists, the presence of an incumbent should not automatically deter investment – in fact, it means a validated market plus an opening for a superior solution. Assess whether a startup is truly differentiated in a way that incumbents will find hard to copy quickly. If so, the startup could become the next Figma in its field, capturing significant value before incumbents catch up or eventually being acquired (or triggering acquisition attempts, as Figma did). The key is paradigm shift + excellent execution – both need to be present.
High Retention & Engagement Are Early Signals of a Great Business: Figma’s stellar retention (130%+ NDR) and deep usage across organizations didn’t happen overnight – they were evident even in its early adoption, with designers refusing to go back to older tools once they experienced the collaborative workflow.
Lesson: For early-stage investors, user retention and engagement are some of the best indicators of product-market fit and long-term potential. Growth hacks can inflate top-line user counts, but retention (do users stick around and grow usage?) reveals true value.
Action: In our diligence for SaaS or consumer-esque enterprise products, we should request and examine cohort retention curves, usage frequency, and expansion rates in pilot customers. If a pilot team starts using the product more over a few months and pulls in colleagues, that’s a mini-version of Figma’s land-and-expand at work. Particularly in B2B SaaS, a design or dev tool that one team adopts and more teams organically join is a very positive sign. Incorporate this into your screening: prefer companies with glowing early user testimonials and evidence of increasing usage within initial customers. Those are the seeds that, with the right nurturing, can lead to the kind of net retention Figma achieved at scale.
Expand the Product and TAM Over Time: One reason Figma could grow so large is that it didn’t stop at one product or one audience. It started with designers, then added collaboration for non-designers, then new products like whiteboarding, and is testing web design, slides, etc. Essentially, Figma kept expanding its Total Addressable Market – from just UI/UX designers to anyone involved in creating a digital product (PMs, engineers, marketers, even users giving feedback).
Lesson: Early-stage companies often begin with a focused beachhead (as they should), but the ones that become massive have a vision for broadening their platform. This could mean adjacent features, new modules, or opening up a marketplace/ecosystem to cover more use cases.
Action: When working with seed-stage companies, probe the longer-term product roadmap. Is the founding team thinking beyond the initial use case? Do they see their product becoming a platform or enabling additional revenue streams (like Figma’s potential future with usage-based add-ons)? Support companies in making smart expansions – e.g., a fintech startup offering an API might later build a full developer platform, or a B2B AI company might add services or data products on top of their core tool. Figma’s multi-product success shows the value of not being a one-trick pony, as long as expansions align with customer needs. Encourage portfolio companies to listen to their user community for natural extensions of the product, just as Figma likely noticed users hacking design files for presentations and then built “Slides” to meet that need.
Efficient Growth is King (Quality over Quantity): During the late 2010s, many startups chased growth at all costs. Figma, however, exemplifies efficient growth – growing fast and maintaining healthy margins and burn rates. It achieved a Rule of 40 far above 40, indicating it wasn’t just spending $2 to get $1 of revenue (as some peers did); instead, growth was driven by genuine demand and efficient conversion of free users to paid.
Lesson: Growth is crucial, but the quality of that growth matters. Metrics like sales efficiency, LTV/CAC, gross margin, and eventually Rule of 40 give a fuller picture than revenue alone. Figma’s ability to grow with improving profitability made it resilient (it could weather market downturns better and didn’t need emergency capital).
Action: In early-stage term sheets and board discussions, emphasize sustainable growth. Help startups instrument their business to measure unit economics early (even if numbers are rough initially). If we see a company is scaling revenue but each new customer is exponentially costly to acquire or gross margins are shrinking, that’s a red flag. We should share examples like Figma with founders to illustrate how focusing on product-market fit and efficient GTM can create a powerhouse that capital markets value highly – whereas growth achieved by brute-force spending can fall apart or lead to down-rounds when markets tighten. Essentially, champion a mindset of efficient scaling, not growth at any cost.
Global Mindset Expands Opportunities: Figma was “global from the start” – a large portion of its users signed up from all over the world, not just the U.S.. This gave Figma an early international footprint and brand recognition without initially investing in overseas offices. Only later did revenue start catching up internationally (still, 53% of revenue is now non-U.S., which is substantial).
Lesson: Especially for software and internet businesses, thinking globally from early on can significantly enlarge your market. Products that are accessible via the web and not tied to local sales can pick up users worldwide (as Figma did via its free tier).
Action: If your investing mandate is worldwide, so we already seek globally-minded teams. We can further encourage portfolio companies to localize their product (if needed), leverage global distribution channels (app stores, online communities), and adopt pricing or support for key regions proactively. This doesn’t mean a tiny startup should immediately open five offices abroad – rather, build a product that anyone in the world can start using, and cultivate international evangelists. Maybe it’s supporting multiple languages early, or seeding a “Friends of [Product]” group in tech hubs globally (akin to Friends of Figma) to spark local user communities. The fact that 85% of Figma’s MAUs are outside the U.S. shows how a great product can attract a worldwide user base organically. Startups in our focus areas (AI, fintech APIs, marketplaces) should consider cross-border needs and not confine themselves to one country’s market if the solution can be generalized. The flip side is converting that global usage into revenue – so as an investor, we should be ready to help startups navigate international go-to-market when the time comes (regulatory in fintech, partnerships in new regions, etc.). Figma’s numbers imply there is still upside in better monetizing its international popularity, a good reminder that user growth often precedes revenue growth globally, and that’s okay as long as the plan to bridge the two is in place.
Founders with Vision (and Conviction) Make a Difference: Throughout Figma’s story, you can see the imprint of a founder-driven vision. Dylan Field (Figma’s CEO) consistently prioritized long-term product excellence – whether it was spending early years perfecting the tech before monetization, resisting early monetization until the product was ready, or turning down (or at least not seeking) acquisition in favor of going the distance. The S-1 letter even says Figma will make decisions that “may not seem immediately rational” in pursuit of big opportunities. And Field’s control of 75% voting power means he can steer the company decisively.
Lesson: As early investors, backing a strong founder with a bold, long-term vision can lead to outsized outcomes – even if in the interim there are contrarian choices (e.g., focusing on R&D over rapid monetization, or rejecting a lucrative acquisition). It’s often these visionary founders who create category-defining companies (think of Amazon’s Bezos, who was famous for long-term bets).
Action: In your investment selection and post-investment support, identify founders who have deep insight into their problem space and a commitment to their mission that goes beyond quick financial wins. This might manifest as a willingness to iterate for years to achieve product-market fit (as Figma did from 2012–2015 before launch, and only monetizing in 2017), or as a refusal to pivot under pressure if they truly believe in their approach. This means not only looking at the idea and metrics but also gauging the founder’s conviction, flexibility, and focus. We should empower such founders to make big calls (like heavy product investment or saying no to premature exit offers) when justified. Of course, there’s a balance – not every risky “big swing” pays off – but Figma’s outcome shows that giving a visionary team patient capital and room to execute can yield enormous returns. Our role is to discern when a founder’s unorthodox strategy is a sign of genius vs. folly. In Figma’s case, early backers who believed in the vision of a collaborative design future are now reaping the rewards.
In conclusion, Figma’s S-1 is more than just an IPO filing – it’s a case study in building a modern SaaS juggernaut from the ground up. For early-stage investing, it reinforces principles like focusing on product-market fit and user love, enabling growth through community and PLG, expanding TAM intelligently, and backing exceptional founders who think big. By applying these lessons, you can identify and support the next generation of startups that can follow a trajectory of sustained growth and market leadership just as Figma did.