“How much should I pay myself?” is one of many sticky questions that arise when founding and scaling a company. A new report from accounting provider Pilot shows how 500 startup founders are answering that question.

Know that 46% of founders are making less than six figures. That range was more common among bootstrapped founders, 69% of whom reported paying themselves less than $100,000, compared to 42% of founders who had raised VC funding.

Don’t be a martyr. Three percent of VC-backed founders and 18% of bootstrapped founders reported paying themselves a $0 salary. But founders should pay themselves a living wage that covers their expenses, whether they’re single and living with roommates or paying a mortgage and supporting a family.

• “It can be sort of a flex: How little can you take?” said Joe Du Bey, co-founder and CEO of Eden, a people success software maker.
• That mentality can hurt founders who don’t have as much of a safety net, have families to support, or are paying off student loans, Du Bey said, noting that it “was not on the menu for me to take zero” early on because he had just finished his MBA and had student debt.
• Startup fundraising adviser and former Y Combinator partner Aaron Harris said he’s seen some founders go into debt from not paying themselves, despite raising millions in funding. “No one forced them to do that,” Harris said. “They just sort of had the impression that, ‘I’ve heard I’ve got to starve to win,’ or something like that.”
• Paying yourself too little can create mental stress or distraction, said Susan Alban, operating partner and chief people officer at the early-stage VC firm Renegade Partners. “If it is, that’s a really important wake-up call,” Alban said.

Get help from your board. “Having a board makes this way easier,” Du Bey said. “If we didn’t have a board, I would probably feel weird about it, honestly.”

• Paying yourself can feel “like you’re taking money from your investors and putting it in your own pocket,” but boards can weigh in on salaries that make sense for founders and other executives, Du Bey said.

Remember that salary is only one component of founders’ long-term wealth. Only 2% of VC-backed founders and 6% of bootstrapped founders reported paying themselves $300,000 or more.

• Employees and non-founder executives will often make larger salaries than the founder, though there’s an argument for having other execs’ comp packages lean toward equity rather than cash.
• “Ideally you want your C-suite to have compensation that’s very heavily equity-based, so that their reward is directly tied to company performance,” said Matt Birnbaum, talent partner at Pear VC.
• At the same time, underpaying execs can hurt your ability to recruit talented leaders, which can mean “you’re going to end up wasting [investors’] money in a different way, not on salary, but on a subpar outcome,” Du Bey said.
• And don’t shy away from considering selling some of your shares at a funding round, Harris said. “If you ever talked to a financial adviser and you say 99% of my wealth is tied up in one thing, they’d tell you to diversify,” Harris said.

Hello, and welcome to Protocol Policy! Today I’m listening to spooky music and thinking about how running a giant international company may actually require some sacrifices and compromises for Musk. Plus, questions are swirling about whether Russia hacked Liz Truss’ phone, and Lyft is both the savior of, and biggest liability for, a California ballot initiative.

Bird is the wor(l)d

During Elon Musk’s first few days in charge of Twitter, he retweeted conspiracy theories about the attack on House Speaker Nancy Pelosi’s husband, began to get rid of the people who make the site the tolerable, and oversaw a spike in hate speech despite promising advertisers he wouldn’t let the service “become a free-for-all hellscape.” Many of those controversies arose in the U.S. market or the company’s San Francisco HQ. The truth is, though, that Musk’s headaches at home may prove miniscule compared to the pressures he’ll face abroad.

Take, for instance, the major world regions where the minimally moderated Twitter that Musk wants to see is going to run into legal problems.

• There’s the EU, of course, where the Digital Services Act will try to curb viral “dangerous disinformation” and will force companies to put in place systems for flagging illegal goods and content for faster removal. The bloc’s leaders are already watching Musk.
• India, where the government has blocked certain posts and local officials are responsible for compliance in a way some observers have compared to hostage-taking, is standing up a board to examine content moderation decisions.
• Turkey is moving toward penalizing the spread of misinformation with multiyear jail sentences.
• And then there is a long list of countries with much less internet freedom to begin with, such as Iran, Russia, and especially China, where Tesla has a lot of business interests that Beijing might well think about using as leverage.

At the same time, international governments already seem to be trying to ally with Musk, influence him, or draw him (further) into their own foreign policy struggles.

• For instance, former Russian president Dmitry Medvedev lavished praise on Musk while trying to get him to stop supplying Starlink to Ukraine.
• A holding company run by a powerful Saudi prince (and of which the kingdom’s sovereign wealth fund owns a significant chunk) is now Twitter’s second-largest shareholder despite Musk’s criticism of the country’s free-speech record.
• And some accounts that exist to boost international governments have begun to ask Musk to remove labels that Twitter’s prior leaders put on them.

Musk’s show of responding to calls for new content policies makes it that much harder for him to dodge the difficulties on these issues.

• That’s especially true if he wants to “continue to fly around the world and shake the hands of authoritarians,” as Facebook’s former security chief Alex Stamos pointed out on Twitter.

Balancing all this was always difficult for the people who ran Twitter full-time. For Musk, it could be almost unsustainably chaotic — in a way that worsens things back home.

• Free speech in the U.S. is one thing, but lawmakers won’t be too happy if foreign states are all over the platform openly undermining American interests and subverting its democracy.
• Republicans who are hoping to take over the House have already signaled they’re going to dig into the parallel issue of Chinese influence on TikTok as soon as they have the opportunity.
• They may be cheering Musk now, but the GOP won’t exactly be happy if he, too, is helping out the Chinese Communist Party, and Republican leadership may be willing to allow Democrats some leeway to keep up pressure on the issue.
• Democratic Sen. Chris Murphy said Monday he wants CFIUS to look into the deal over the Saudi connection, for instance, although the kingdom’s smaller stake in the company is years old.

In addition, whatever Congress wants to do — or at least to threaten to do — to tech in the next two years will come down on Twitter as well. If he can’t get control of the international issues, Musk may very well find he has fewer allies than he thought among Republicans, and he could find few friends among Democrats. His main headaches may be international, but Musk may soon find out just how easily trouble crosses borders.

In Washington

U.S. self-driving truck company TuSimple is under investigation by the FBI, SEC, and CFIUS for its ties to a small Chinese firm, according to a Wall Street Journal report.

Several tech companies including Google, Apple, and Microsoft signed onto amicus briefs urging the Supreme Court to leave affirmative action rules in place. The justices are hearing arguments in the case on Monday.

The White House this week is hosting a summit on ransomware. Representatives of both foreign countries and the private sector are due to attend.

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On Protocol

Lyft’s funding of a California ballot measure to subsidize EV’s saved the initiative, but now that money has become a liability. Opponents of Prop 30, who have their own corporate ties, have painted the measure as a giveaway to the company, resulting in strange bedfellows on either side of the issue trading accusations.

Eric Schmidt will tell anyone who’ll listen that the U.S. is losing a battle against China for AI supremacy. Yet Schmidt, with extensive ties to both the Pentagon and the business world, also happens to be one of the most prominent investors in the AI sector that’s poised to benefit from the resulting sense of urgency.

TikTok is facing intense scrutiny in its role spreading election misinformation, but former staff say high turnover plays a role in the problem.

Coming soon

Protocol Live: AI and chips. This virtual event hosted by Protocol will bring together tech and policy experts to discuss the future of AI-related partnerships existing among tech businesses, developers, and AI researchers in the U.S. and China. Join us at 10:30 a.m. PDT / 1:30 p.m. EDT on Thursday, Nov. 3. RSVP here.

Around the world

The U.K. government is facing calls for an investigation following an unverified report that Russia hacked a phone belonging to former Prime Minister Liz Truss ahead of her brief tenure.

A ProPublica report found Google’s ads business makes it possible for disinformation sites in Europe, Latin America, and Africa to monetize their dreck despite the company’s stated mission to stamp out falsities. In one case, Google’s tools continued to let advertisers pay for space on a site that the U.S. sanctioned for its ties to a prominent Bosnian Serb separatist.

​In the media, culture, and metaverse

Musk’s plan to juice revenue from Twitter reportedly includes a $20/month charge to maintain verified status. This is both a sort of fun thumb in the eye to a certain class of know-it-all Twitter obsessive (e.g., me) and a very bad idea if you like having a gauge on the accuracy of information coming from news outlets, reporters, government bodies, activists, market participants, first responders, public health officials, and anyone else who might be valuable to spoof. It also wouldn’t raise much money. Many high-profile users are responding unfavorably to the idea.

CrowdTangle, the social media analysis tool owned by Meta, reportedly told a number of journalists and academics it’d be kicking them off when it wasn’t actually going to. With the midterms coming up, people who have studied social media’s effect on elections were particularly worried, but Facebook has now said the alerts went out in error.

Unbreak this site

Some celebrities have announced — or at least claimed — they’ll be leaving Twitter now that Musk is in charge. According to NBC, Shonda Rhimes, Sara Bareilles, and Toni Braxton are all logging off.

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As the midterm election nears, TikTok has faced unrelenting scrutiny about the role it plays in spreading misinformation and the way influencers and political operatives skirt its advertising rules. But according to seven former employees from TikTok's trust and safety team, the company may have an even more basic problem inhibiting its efforts to secure the midterm election: High turnover among the employees who are supposed to carry out that work.

TikTok is still the new kid on the social media block. In 2018, the up-and-comer was barely a blip in the conversation about U.S. elections. By the 2020 election, it had built out its trust and safety team. But since that time, former employees told Protocol, members of that team have scattered, leaving TikTok with limited muscle memory just when it needs it most. “Since so many people are new, they don’t necessarily have the history or institutional knowledge,” one former employee said.

These former employees attributed the trust and safety team’s high attrition to TikTok’s grueling work culture and a lack of transparency from leadership about access to and policies around user data. “If they don’t stem the tide of all the people they’re losing, it’s going to be hard for them to be effective,” another former employee told Protocol.

TikTok refused to say exactly how many employees have left its trust and safety teams, or how many are employed now. The company also declined to specify exactly how the U.S. trust and safety team is structured, and if that structure has changed since 2020. In September, chief operating officer Vanessa Pappas told Congress that trust and safety is “our largest labor expense for TikTok’s U.S. operations,” with “thousands of people working across safety, privacy, and security on a daily basis.”

Protocol identified 239 people worldwide on LinkedIn who left TikTok’s trust and safety operations since 2021, with 94 of those leaving just this year and 67 based in the U.S. (LinkedIn member information may not fully represent staffing or attrition, due to the potential for fake accounts.) The company posted listings seeking to fill election misinformation roles as recently as October.

“We encourage a culture of transparency and feedback, and are committed to building an equitable platform and business that allows both our community and our employees to thrive,” a TikTok spokesperson told Protocol.

Why misinformation is particularly thorny on TikTok

Civil rights groups have been sounding the alarm about election misinformation for weeks. The Leadership Conference on Civil and Human Rights recently addressed a letter to social media companies urging them to tamp down on the “Big Lie,” false claims that President Joe Biden lost the 2020 election to former President Donald Trump, in addition to new misinformation. Conspiracy theories about general fraud within the U.S. election system abound not only on social media but also among a majority of Republican candidates on the ballot this fall.

Every platform is working on ways to tackle mis- and disinformation related to elections, but there are a few factors that make it even harder on TikTok than elsewhere. For one, video can be a challenging medium to analyze: It’s harder to extract information and search for keywords in images and audio than in text. YouTube faces similar challenges, but it’s been around for far longer than TikTok.

And then, of course, there are the challenges that have nothing to do with technology and everything to do with humans. Karan Lala, a fellow at the Integrity Institute and former software engineer at Meta, noted that mass enforcement is difficult because people might tell the same lie in completely different ways.

“Let’s say you review one video and say, ‘oh the content of this video was a lie,’” Lala said. “How do you effectively link that decision to all the videos that might be coming from different creators that phrased the lie in a different way?”

TikTok’s algorithm also largely displays content from strangers, which means information spreads far beyond a person’s social circle. You don’t necessarily need a following to go viral, so any video might have infinite reach. Because of this — and the fact that researchers don’t have access to TikTok via an API, though TikTok promises to release one soon — it’s especially hard for outside researchers and experts to recreate what an average “For You” page might look like.

“How do you keep TikTok’s For You page from picking a relatively obscure video that is harmful and blasting it to millions of people?” Odanga Madung, a researcher with the Mozilla Foundation, asked. “Because that's essentially what I was seeing on a consistent basis.”

Empowering trust and safety teams is critical in halting misinformation. TikTok is not very transparent internally, as it doesn’t provide an organizational chart to employees. Several former employees told Protocol they felt disconnected from the teams working on TikTok’s algorithm in China, often having to wait for engineers in China to respond to crises such as unflagging critical keywords.

“You need that team to have as much power and be as closely situated to the team that is building the algorithm in and of itself,” Lala said. “You need to be able to disrupt or slightly tweak the outcome of an algorithm based on integrity signals.”

TikTok’s ties to China have also led to heightened scrutiny of its content moderation decisions, even above and beyond accusations of “censorship” that routinely get leveled at other platforms. “TikTok has received a huge amount of criticism for both moderating too much and moderating too little,” said Casey Fiesler, an online communities professor at University of Colorado, Boulder.

Trust and safety needs institutional memory

All of this makes for a complex trust and safety landscape inside TikTok, which was just beginning to take shape during the 2020 election. Like other platforms at the time, TikTok’s employees had to decide how to handle videos discussing Hunter Biden’s laptop. “Do we just take it down and assume it’s all misinformation because it’s unverified?” a former employee told Protocol. “What do we do so that we’re not ‘big bad China’ and we’re not censoring everyone?” The team eventually decided not to fully take those videos down, unless they seemed egregious.

Another challenge during the 2020 election: handling political party-based hype houses. The former employee told Protocol that the Republican Hype House was especially difficult to deal with. The house members kept referencing unsubstantiated QAnon-related claims, but TikTok didn’t want to be accused of suppressing partisan speech. TikTok employees warned the house several times, but never took the account down.

Several told Protocol they were worried about the company’s ability to handle these types of issues with high turnover. One former TikTok employee said only one of the U.S.-based employees currently working on the threat analyst side worked at TikTok during the 2020 election. TikTok declined to comment on this claim.

David Polgar, founder of All Tech is Human, said one of the reasons for high trust and safety attrition more broadly is the explosion of the field. Every tech company worth its salt is looking for quality trust and safety employees, he said: “If you’re doing trust and safety for a major platform that is on the up-and-up like TikTok, you are also a really hot commodity for any startup.”

Burnout is common among trust and safety professionals and may also be a factor in high churn. Even if you’re not a direct content moderator, you’re working in a constant flow of disturbing content.

That type of turnover isn’t always a bad thing, said Katie Harbath, founder of Anchor Change and former public policy director at Facebook. “You are seeing people that were incubated in some of these other platforms, particularly your Metas and Googles, and also your Twitters and TikToks,” Harbath said. “They’re able to take that experience to other companies that may actually have nothing.”

TikTok, for its part, says it’s learned a lot from 2020 and is putting that knowledge to use this year. The company has already publicly released some of the lessons it learned after the 2020 election, including the need to improve its disinformation detection systems and educate creators on TikTok’s zero political ads policy. TikTok released its in-app election center six weeks earlier this year than in 2020 and is labeling content related to the 2022 midterms with a button leading to the information center. Hashtags like #elections2022 will also lead to the center and TikTok’s community guidelines. While content is in the process of being fact checked, it will be excluded from For You feeds.

Around the world, TikTok has hired more trust and safety employees, opening a Europe, Middle East, and Africa hub in Dublin and expanding its hub in San Francisco. It also launched content advisory councils in the U.S., Asia, and Europe. But former employees fear none of that will be enough without a battle-tested team in place.

Two years since the 2020 election, misinformation about the process and outcome still abounds. Mozilla’s Madung said TikTok will need to remain vigilant in the weeks following the midterms. The overarching goal is to avoid violence on or around election day, but Madung said TikTok needs to think about the deeper, pervasive damage caused by misinformation. Lies are persistent.

“Platforms often tend to start the interventions too late, and then exit too early, and don’t recognize that election misinformation is an incredibly durable piece of information,” Madung said.

Data oracles, the automated feeds that provide crucial price data to smart contracts and enable trading on blockchains, are drawing increasing scrutiny over their roles in recent hacks and the vulnerabilities the industry’s reliance on them creates. They’re also attracting more investment from VCs and larger crypto players who see an opportunity amid these fears.

Two hacks this month illustrated the crucial role oracles play in crypto. A $114 million hack of Solana trading service Mango Markets took place after an attacker caused the price of a token reported on an oracle to triple. A smaller attack, on Moola Market, also centered on oracle price manipulation.

Oracles provide data that is not on the blockchain — off-chain data — in order for the blockchain to perform some action. Even crypto price data comes from oracles: Blockchains can’t execute or record trades without the market prices provided by oracles. They’re a critical piece of infrastructure, in other words, though it’s rare for anyone besides smart contract developers to pay attention to their value or dig into their vulnerabilities.

Chained together by data

Virtually every crypto application needs data to operate but it has to get it from a trusted source, and ideally fast and cheap. Many DeFi protocols rely on Chainlink, an open-source technology, to provide prices. Oracles, which aren’t a new concept in computer science, are named that because they “know things that the system can’t know,” said Sergey Nazarov, co-founder of Chainlink Labs.

Founded in 2017, Chainlink uses a network of interlinked oracles to provide 60% to 90% of market data across all of DeFi, according to Nazarov. This year it has helped process more than $6.4 trillion in transactions, he said. Chainlink started on Ethereum but is now on more than 15 blockchains.

Chainlink is hoping to extend this approach to other types of data and other financial applications, like insurance. Some new insurance providers such as the Lemonade Foundation and Arbol are using weather data provided by Chainlink to pay out insurance claims, dispensing with the need for traditional inspections. In blockchain gaming, Chainlink also offers a type of oracle that provides randomly generated numbers used for generating awards, characters, maps, or other parts of games.

Crypto applications such as derivatives protocol Synthetix, DeFi lending protocol Aave, and decentralized exchange PancakeSwap also use Chainlink for price feeds, automation, and random number generation, among other services.

Finding alternatives

Despite — or because of — its ubiquity, there appears to be growing interest in alternatives to Chainlink. Binance launched a native oracle service last week for its BNB Smart Chain, taking in-house a system that had previously run on Chainlink, the largest oracle provider.

Protocols like API3 and Flux have first-party oracles, which provide more transparent data direct from the source, instead of data aggregated by nodes, which is the approach used by Chainlink and others, said Flux co-founder Jasper de Gooijer.

“The main advantage if you're not using a third-party layer [is that] you remove a whole attack vector that's intrinsic to basically every other oracle project,” said Dave Connor, co-founder and business development lead at API3. Connor also helped run an early Chainlink node.

API3 and Flux also argue they are more decentralized than Chainlink. While Chainlink’s oracles are spread out among various nodes, their selection is still controlled by Chainlink, Connor said. API3 is trying to address this by managing its oracles with a decentralized autonomous organization.

Connor pointed to an incident with Chainlink where the price of gold was substituted for the price of silver to derivatives outfit Synthetix, which could have led to massive losses. “The exploit didn't really cause many people to lose anything,” Connor said. “But it's an example of what happens when the governance isn't out in the open.” Chainlink said this was due to human error, not a problem with the oracle.

"Chainlink Data Feeds are decentralized at the data source, oracle node, and oracle network levels, generating highly reliable and accurate market data with strong protections against downtime and tampering,” Nazarov said.

This debate between efficiency and decentralization is common in crypto. “The reality is, over time, everything gets more centralized,” said Boris Wertz, who invests in crypto at Version One Ventures, citing bitcoin mining and ether staking as examples. “The question is, then, what's the right balance between something that is efficient versus something that is sufficiently decentralized? Every single validator network has a balance between decentralization and efficiency.”

A risk to the crypto system?

Some insiders say having one major provider or a small number of providers undergirding the industry presents a risk for a new industry like crypto. “I think that that's why there's a lot of venture money that's going after alternatives,” said Shawn Douglass, CEO of Amberdata, which provides data to oracle networks.

There’s always a “good news, bad news” debate when one big player in a category does well, Wertz said. “Obviously, that player is most likely stronger in terms of security and scale than others. At the same time, if it gets manipulated, then lots of people will get affected.”

The risk of that happening depends on what sort of back-up options oracle users have, but not all have enough redundancy, said Austin Campbell, head of portfolio management at crypto infrastructure firm Paxos. “It's critical for protocols to have a resilient set of data providers in order to have multiple redundancy options in the case of outage or failure. This will reduce risk in DeFi, given most protocols do not have circuit-breaker-like technology that halts trading,” he said.

But Nazarov said Chainlink’s size isn’t a risk, because it can be customized to be as secure as developers want it to be. “Chainlink is actually an open-source framework for people to make their own oracle networks,” he said. “It's actually a way for people to compose the degree of decentralization and risk management that they want.”

In the Mango Markets attack, Mango shouldn’t have allowed such a large withdrawal based on that oracle pricing. So the oracle, Pyth, wasn’t at fault, according to FTX CEO Sam Bankman-Fried. Still, the incident and similar hacks show that even if an oracle is correct, the way it is used can present “very significant risk,” Campbell said.

Nazarov pointed to the Mango incident as well, noting that Chainlink’s design prevents that type of price manipulation from happening. “I think it's a larger risk to make a faulty oracle and get hacked,” he said.

These kinds of debates are likely to continue. As institutional players get deeper into crypto and regulators dig in, critical pieces of infrastructure like oracles are certain to get more scrutiny. Oracles may know things that aren’t on the blockchain. But their ultimate test may come in knowing themselves.

For decades Adobe has completely dominated the creative software industry. The company’s impressive community of designers, communications, developers, and artists have propelled the company to becoming a $14.6 billion giant with no clear rival.

Although discontent over pricey subscriptions, steep cancellation fees, hard-to-use software, and slow innovation hasn’t made Adobe’s customers the happiest in enterprise software, there weren’t many alternatives.

But one emerging alternative was Figma, the web-based product design startup with a cult following that Adobe acquired in September. The massive $20 billion acquisition reflects Adobe’s intent to revinent itself around collaborative web-based design.

Adobe still faces potential challenges in making the deal a success, including Federal Trade Commission scrutiny, pushback from designers wary about its history, and a challenging macroeconomic environment. But if Adobe can succeed, it will only further entrench the company’s unrivaled dominance among creative professionals.

Playing defense

It’s easy to forget that Adobe has been a major part of enterprise tech for decades. Founded in 1982, the company’s imaging, video, illustration, and 3D products have become the de facto standards for artists, illustrators, and designers all over the globe.

Throughout its history Adobe has acquired a number of smaller competitors to grow its reach, including Marketo, Behance, Frame.io, and others. Today Adobe’s portfolio includes products in imaging, video, photography, marketing, commerce, and others that sit across its three clouds: Document Cloud, Experience Cloud, and flagship Creative Cloud.

Adobe’s Document Cloud, which is the smallest, generates about $2 billion in revenue annually for the company, driven largely by PDF reader Acrobat and its e-signature product, Adobe Sign. Although Document Cloud delivers the lowest revenue of its three clouds, the product suite is integral to Adobe’s broader growth strategy, which hinges on bringing Acrobat to every user across every device, and then funneling them throughout Adobe’s broader product suite.

“The demand for PDFs has never been greater,” said digital media president David Wadhwani, who oversees Document and Creative Cloud, during the company’s financial analyst day earlier in October. “It’s a very productive engagement and up-sell motion for us.”

Experience Cloud comes in second, with $3.9 billion in revenue last fiscal year, propelled by digital marketing products for audience analytics and content management, and underpinned by its customer data platform.

But the true driving force of the company is Creative Cloud, which houses products such as Photoshop, Illustrator, Premiere, and XD; it generated $9.5 billion for the company last fiscal year, the majority of its overall revenue.

Over the past several years, Adobe has been focused on moving its creative suite into the cloud, launching web-based versions of Photosop, Acrobat, Illustrator, Premiere, and others, although the majority of its core applications are still desktop-only.

As an attempt to remedy that, and compete with startups such as Canva and Figma, the company launched Adobe Express in December of last year. The free app that lets users easily design graphics, edit photos, trim videos, and more.

Adobe Express is distinct from the company’s other Creative Cloud products because it doesn’t require a pricey subscription or years of expertise to use, making it more accessible to a wider swath of users. “Express has definitely expanded the top of the funnel,” Wadhwani told investors. “We’ve removed all barriers to adoption.”

Based on comments from CEO Shantanu Narayen, CFO Dan Durn, and others during the company’s annual MAX conference earlier in October, it’s clear Adobe believes its future hinges on web-based collaborative design. That’s why the acquisition of Figma, which has been both web-based and built around simultaneous multi-user collaboration from its debut, will be so central to Adobe’s success moving forward.

Winning the web

Figma was established in 2012, and found success by putting easy-to-use creative tools in a browser for low prices. Bolstered by a freemium model and an intuitive interface the company grew from $0 to $400 million in annual recurring revenue in only a few years.

“One of the things that I remind people is, Figma didn't even start to monetize until I think very late 2017. So they’ve gone from zero to over 400 million in ARR in something like four years,” Adobe senior vice president of digital media Ashley Still told Protocol. “That is very unique. If you go look at Atlassian or Slack or others, it is just rare to have the type of growth rate that Figma has,” she said.

Now Adobe is hoping it can capture some of what makes Figma special, along with $400 million in additional recurring revenue.

Investors, analysts, and others in the tech community have questioned Figma’s massive purchase price. At $20 billion, the deal is 50 times Figma’s annual recurring revenue and would set a record as the largest private tech acquisition in history at the time of announcement.

If you go look at Atlassian or Slack or others, it is just rare to have the type of growth rate that Figma has.”

But Adobe executives remain confident about the purchase price and value of Figma. “If you went out 12 months you can easily get to discounted cash flow models that [justify that amount] over time,” said Still.

But some industry analysts aren’t buying that calculation.

“When you consider what Figma is adding as a percentage of Adobe's total ARR and even factoring in an expectation of robust growth for another two, three years, it’s still in our view difficult to truly rationalize the amount that is being spent,” said Gregg Moskowitz, managing director of enterprise software research at Mizuho.

The real reason Adobe paid so much, of course, is because Figma was a serious competitive threat. While Moskowitz hadn’t necessarily seen enterprise customers leave Adobe entirely, “We were hearing on some occasions that customers were curbing the amount of growth in Adobe licenses and funneling more of their budget towards Figma,” he said.

Plus, if Adobe didn’t buy Figma now, it might never have been able to.

“Think about the opportunity cost of not getting Figma right now,” said Valoir research analyst Rebecca Wettemann. Sure, Adobe “spent a lot of money for it, but compared with what right? With missing out on the opportunity,” she said.

Adobe, of course, is aware of all this. “While there were questions perhaps about the purchase price, and questions upfront about what that said about our core business … it’s now about the excitement of what [we] can do together,” Narayen told investors.

That may be true. Adobe knows that it needs Figma to remain the software of choice for designers and creatives, and Figma will benefit from Adobe’s customer base and financial muscle.

Already, Adobe is taking a number of steps to become more like Figma. During Adobe's annual MAX conference, the company announced a number of new product features with Figma-like flavoring, including new collaboration features for Photoshop, Illustrator, and PDF reader Acrobat. Adobe also expects that Figma is going to help make real-time co-editing a reality across its product suite.

Non-compete

Adobe still faces some challenges in propelling itself into its next stage with Figma’s help.

Since Adobe largely dominates the design field, the FTC will probably keep a close eye on the proposed Figma acquisition. Earlier this year the FTC sued to block Meta’s acquisition of VR company Within, which was arguably more tangential to the company than Figma is to Adobe.

But Adobe executives don’t agree. “We’re confident that the businesses and the products are really adjacent,” said Adobe’s Still. That sentiment was echoed by Narayen to investors, even though Adobe has products that compete directly with Figma.

For example, Adobe XD, which is a desktop product for user experience design, essentially does the same thing as Figma. Case in point: When Figma built similar functionality but offered it collaboratively over the web, Adobe slowed down its investment in XD.

“[Figma] totally reframed the whole industry to the point where XD became a company that was just not growing or working, frankly, and we started to wind down our focus on that,” chief product officer Scott Belsky admitted during a press conference at Adobe MAX.

We were hearing on some occasions that customers were curbing the amount of growth in Adobe licenses and funneling more of their budget towards Figma.”

Designers are also broadly opposed to the Adobe-Figma deal, because many viewed Figma as a cheaper and easier-to-use alternative than Adobe. Designers have voiced concerns about everything from pricing changes and high cancellation fees to fears over losing the vibrant Figma community.

Those fears aren’t entirely unfounded. “Adobe is not great to do business with,” said Valoir’s Wettemann. Since Adobe has been “ostensibly the only game in town for professional designers and developers, they’ve been able to dictate terms to a certain extent,” she said.

Although Adobe is committed to maintaining a free tier for Figma and other products, some investors and analysts are convinced the price will go up anyway.

As much as designers don’t like price increases, it probably won’t lead to much customer churn. For example, after Adobe raised prices on its Creative Cloud suite about six months ago, there was some customer pushback, but not enough to cause concern for Adobe, said Moskowitz. He also pointed out that price increases in this environment aren’t uncommon, and that companies like Microsoft have raised prices on some products by 10% or more.

Adobe has also tried to convince designers that it intends to preserve the sense of innovation and community Figma has thrived on. But large-scale integrations always present challenges to corporate culture, and corporate red tape and bureaucracy slow down innovation.

Allowing Figma’s Dylan Field will remain CEO, he will still have to squeeze into Adobe’s culture. “I wouldn’t say autonomous,” Adobe’s Still said of Figma’s operating structure. “There are definitely very specific areas of synergy that we’re excited to drive together.”

Adobe is not great to do business with.”

Stitching together acquisitions is never easy, but Adobe executives have pointed to the company’s track record of helping startups in the past. For example, Behance, the social media platform for creatives founded by Adobe chief product officer Scott Belsky, grew its community from 1 million to 31 million members since its acquisition by Adobe.

“The product is better and tighter and faster-growing than it’s ever been before right now,” said Belsky during a press conference. “So Behance has not only benefited its community from the acquisition, but it’s also a better product.”

Adobe also has a history of installing the leaders from those acquisitions as key executives. “You’re talking to someone who came in through an acquisition,” said Belsky. “David Wadhwani, president of our digital media business, came in through Macromedia. A number of our leaders came in through acquisitions. And so in some ways, we have that playbook.”

Some analysts agree that Adobe has done well in its past M&A strategy, but still think Figma is a different story. “You’d have to look at Marketo as the most expensive, but even that was less than one-fourth the size of what Figma is costing them,” said Mizuho’s Moskowitz. “Any way you slice it, this is a different animal, there’s going to be more complexity with respect to integration,” he said.

Despite the challenges Adobe will face moving forward, the company has several key advantages. The company still has a large community of designers, artists, and developers; a dominant market position; a sprawling product suite; a strong cash position; and healthy revenue.

After acquiring Figma, Adobe will have no serious contender, aside from startup Canva, which is used primarily by average consumers and not professional designers. It has both the ambition and resources to define the next generation of creativity and design.

Adobe started supporting NFTs last year, and at Adobe MAX it announced a slew of product features and enhancements intended to power the metaverse. Those include new additions to its generative AI product, Adobe Sensei, partnerships to help authenticate digital content, and updates to 3D design product Substance, which will integrate some apps directly into Meta’s Quest platform.

Although analysts know the enterprise software industry is tougher to navigate today than in the past, they remain optimistic about Adobe’s future.

“Overall we didn’t [see] that there are any deep concerns. I still think that Adobe carries unrivaled breadth [and] unrivaled brand awareness in the markets in which they play,” said Moskowitz.

Still, while ideas are easy, execution is hard. The good news for Adobe is that the only true barrier the company faces is itself.