Figma S-1

Live from Schenectady, New York, it's SaaS Talk with the Metrics Brothers, Growth and CAC.

And I'm Growth, better known as Ray Reich, founder and CEO of Benchmarkit.

And I'm CAC, better known as Dave Kellogg, EIR at Balderton Capital, independent consultant, and the author of Kellogg.

And together we are the Metrics Brothers.

And we go together like Cliff Notes in college. Ray, Ray, Ray, please tell me you didn't use Cliff Notes in college.

I hate to say it, Dave. I went to a state school and I did. But maybe it's more like ChatGPT in education today since it appears that grade school, high school, and college students all use ChatGPT for their assignments.

Okay, Ray, tenuous link to the script today. As long as we're on tenuous links, you may notice I'm wearing my Vic.ai garb. They gave me a nice little pullover. I'm on the board there. Uh, I don't know how many of our audience actually watched the video, Ray, and we rarely wear gear from our companies. I don't know if you do, but it was a rare occasion. They asked me to wear it, so I did. It's very comfortable, by the way.

I always wear my homage to Steve Jobs.

Ah, and Elizabeth Holmes. You're doing your Steve Jobs, Elizabeth Holmes look.

But today we are talking about companies that are going to be going public, and specifically We're going to cover the Figma S1, which, you know, it's an interesting read and might even beg some questions.

It does indeed, Ray. But before we do that, let's hear a word from our sponsor.

The Metrics Brothers is proudly sponsored by Benchmarkit, the B2B AI and software industry's largest, broadest, and most contextualized benchmarking index. Dave Kellogg and Ray Groth Wright have put the Metrics Brothers podcast on hiatus for the remainder of 2026. All episodes we have ever recorded are still available on your favorite podcasting app. You can reach Dave at Kellogg and Ray on LinkedIn at Ray Reich. Thank you so much for listening to the Metrics Brothers podcast.

Okay, Dave, so we're going to get into a lot of detail and data, and we did— the S-1 was about a week ago from recording this. And there's been several industry thought leaders who've covered it. The Only CFO.

Well, we would have covered it a couple of days ago, Ray, if you didn't ride your bike into a wall. But do we want to talk about that?

Yeah, well, I am doing this episode with 2 broken ribs and it shows how committed I am to SaaS Talk with the Metrics Brothers.

There we go. There we go. Okay. So tell us more about Figma, Ray.

Okay. So, so Figma, number one, they're a web-based collaboration design platform. You know, broadly used by product designers, UX and UI teams, and developers. They have 450,000 customers directly from their S-1. They have 78% of the Forbes 2000. They have 13 million monthly active users. And they highlighted here, Dave, that 2/3 of their 13 million active users per month are non-engineers. And my point was, well, that's not surprising since It's a tool primarily for UX designers and even product managers. So that didn't surprise me, but I think you'd have a different perspective on that.

Yeah, I'm not familiar with the exact section of the S-1 you're referring to, but to me, the part that grabbed my attention in reading all this is that 2/3 of their users are not designers. And that is indeed a very interesting thing to observe because Figma is known as being a tool for designers. And as you can see for their product line, which is pictured in the S-1, They've built a suite now of something like 6 or 7 products that meet multiple personas in the organization. And now for every designer, they've got 2 people who aren't designers using it. And somewhere in all the docs I read, Ray, I think they have about 2.4x average products per user. Um, I don't know where I found that one, but it's, it's somewhere in the readings. Um, and it does reflect a successful kind of land in one area and expand strategy.

You're exactly right. In fact, within the S-1 itself, it says that 76% of their customers are using 2 or more products.

Ah, okay.

One of the other things that I thought was interesting, and people didn't talk a lot about it in the first, you know, few days after the S-1, that is, this is a company that was announced to be acquired by Adobe in September of '22 for $20 billion. And back then, almost 2, 2 and a half years ago plus, they were a $400 million company. So they were getting acquired by— for $20 billion, which is almost a 50x multiple to their revenues, one of the highest of all time. So another thing, Dave, and I wanna talk about why it broke up, but that offer of $20 billion was 50% cash and 50% Adobe stock. And side note, Adobe stock is down 34% in the last year. So maybe that was a good thing for them.

Yeah, this is an interesting tale, you know, Ray, because not all companies that get left at the altar do well after. And these guys abandoned this transaction about 14 months after it was announced. The stated reason, which I believe, is that they thought it was unclear if European regulators were ever going to approve the transaction. So I think they were at their wit's end with that. They terminated it. I think you mentioned that they got the billion-dollar breakup fee, which certainly is not a bad consolation prize. Good on their lawyers for negotiating that upfront. And the question on everyone's mind is ultimately, was this a good or a bad thing for Figma? For Adobe, I think it was bad. I think maybe the stock wouldn't be down 34% if they'd succeeded on doing the deal. And I think for Figma, it's almost at this point obviously good, having managed through that crisis. I believe in one of the many reports I read on this, Ray, I apologize, I've read so many reports on this thing, I don't know what's coming from where, but I saw one estimate that says they're creating between $5 and $8 billion of value beyond the $20 billion that they expect to be trading at. So I think this has been a great thing for Figma to remain independent and to build themselves out as a platform and category leader.

And the last topic we're going to cover today is going to be expected valuations. So I think we'll put some numbers behind that. But let's talk about some of their key performance metrics, Dave. The last 12 months, $821 million in revenue. If you look at their fiscal year '24, January 1st through December 31st, '24, They did $749 million. In Q1, they did about $228 million. So they're still growing about 46% to 48% a year. Last year was 48% year over year. Last 12 months was 46%. And if you take the Q1 '25 revenue number and multiply it by 4, you get an implied ARR of $912 million. But what blew me away, Dave, was that revenue's at a 91% gross margin.

Yeah, you know, I'm gonna— one of my— there's a lot of posts on this, Ray. CJ did one on the Figma IPO, Jamin Ball did one, Sasser did one, uh, the guy at 20VC did one. There's a lot of posts out there. One of my favorites is Jamin Ball's because he puts the— he takes all the standard charts and just drops the company on. So you can see that, hey, on LTM, they're actually kind of middle of the pack towards the bottom. Makes sense, LTM revenue, because they're, they're a new IPO. Growth rate, they're number 1. And on gross margin, it looks like they're in the top 5 at 91%. And Jimin's simple but very clear way of illustrating this, I really love.

And well, the other thing, we're going to talk about NDR, net dollar retention, in just a minute because they're reporting it at 132% in Q1 '25, 134% for last fiscal year. But let's look at their total amount of paying customers in the S-1. 450,000 paying customers. And they were nice enough to break it out for their top segments. And that was 40 customers are billing more than $1 million a month. There was 1,031—

Million a year, right? Million a year.

Million a year. Thank you. 1,031 customers with greater than $100,000 ARR and 11,107 customers with greater than $10,000 ARR. But one of the things they didn't share with us, and I did just some basic math, was those 438,000 customers that were doing less than $10,000 ARR, which is over 95% of their total customers. And when I did some basic math, because they said that 64% of their ARR was coming from customers greater than $10,000, that means 36% of their revenues coming from customers less than $10,000 ARR, and they never talked about that from a gross dollar or a net dollar retention. And I just thought it was weird that you don't talk about 36% of your revenue and 95% of your customer base.

Yeah, so there's a couple things to unpack there, Ray. First, for those who like to split numbers in S-1s, it took Ray and me a little bit of time to figure out, hey, when they say greater than $10K, does that include Everybody bigger than $10K, or is that just $10K to $100K? And a few sanity checks on the math will lead you to conclude that correctly, that greater than $10K means greater than $10K, and greater than $100K means greater than $100K, i.e., the lower segments include the upper ones in them. First thing, uh, Ray, I agree with your math that 36% of the revenue is coming from customers less than $10K. Um, I will state that they're pretty clear that they release their SaaS metrics only for people above $10K. So they are excluding a material chunk of the business. I think we can guess why they're doing that, by the way. And the bigger problem— and this is a problem I think with Jamin's post, which I just praised a minute ago— is some of their metrics are calculated in non-standard ways. So he threw them up there on his NDR chart, and they look great on his NDR chart, except Mrs. Lincoln, for the fact like they're, they're number 1 on his NDR chart, uh, but, but they're calculating NDR not Not only for a third of their customers, but using— sorry, excluding a third of their customers, but also using a pretty non-standard calculation, which I know you can't resist digging into in a minute. So, uh, in any case, yes, Ray, thanks for slicing up the numbers, and I think your observations are correct. And it's a little— look, let's talk about the dead moose here. Um, I don't think it's that bad that they're excluding the less than $10K customers. Why did they pick $10K? I'll bet you any amount of money because that's where things started to look bad. If they look good down to $5K, they would have done it at $5K, right? So somebody in finance got chartered with picking a threshold above which they still looked good. So you could assume it's kind of a mess down there below $10K. But I think it's okay. You know, for me, I think they're a PLG business. They've got a lot of little customers out there. I think you calculated the average ARR in that segment was $670-something per little customer.

Yeah.

So if you just view that all as kind of a giant marketing sludge pool, which I would, then I don't really care about their effect. I don't want them included in our GRR. So I'm a lot happier to exclude them from the SaaS metrics than I am, uh, with the way they calculate NDR. Uh, I'm a lot happier about that, the first thing, than the second one.

Okay, well, let's get into it. Do you want to talk about how they calculate NDR first or GDR first?

I think, I think NDR personally.

Okay.

So with NDR—

Because I think it's simpler, he says with great trepidation. But yeah, let's go ahead.

I'm going to read it and then I'm gonna let you comment on it. So this is right in the S-1. It's page 119, I believe, I believe. But we calculate net dollar retention rate as the applicable period of measurement by starting with the ARR as of the date of measurement. Let's say that's last quarter from all paid customers with more than $10,000 in NRR. ARR that were also paid customers with more than $10,000 in ARR as of 12 months prior to such date of measurement. What that tells me, Dave, is they start with the customers today that are greater than $10,000, right? And then they look back to see which of those customers were greater than $10,000 a year ago.

And then they sum up the ARR from both those pools. So, Yeah, so there's 2 things here, Ray. Let me just try and decompose this a little bit. One is survivor bias. They're doing it backwards, right? Whenever you say let's start our ARR, our NRR calculation by looking at people who are customers today and seeing what they look like in the past, that is survivor bias. Because the definition of NRR, or NDR in their case, is supposed to be let's, let's grab people who were customers a year ago, normally everyone who was a customer a year ago, and see what they're worth today. Or if you want a segment, you say let's grab every customer in financial services who was a customer a year ago and what they are today. Or if you want to segment, let's grab every SMB customer who was a customer a year ago and what their ARR is today. Now, as soon as you do that last one, because people rarely switch industries, you have a switching problem, which is, oh shit, they were SMB a year ago but they're mid-market now. What do I do, right? So you start to get these complexities. And by the way, when you add this revenue threshold, which is the second thing— so one is they're, they're— the way they're expressing it is survivor biased. Which is, you know, you don't start with people who are customers today. You start with people who were customers a year ago and see where they are today. That's virtually how everyone else does it. Some people use survivor-biased NRR, but not many. And then you've got this threshold at work where you're saying basically, if you were a customer with more than $10,000 today, we'll include you. So people who churn to zero are gone, right? And people who are not above 10,000 a year ago are also excluded. I am curious if they just say there were 5,000 a year ago and 15,000 now, do they count them as 15— 10,000 of expansion? Per this definition, they wouldn't because they wouldn't qualify. But I would just say, Ray, it's an unusual way of doing it. It's a non-standard way of doing it. So I don't believe for a second that they're the best company out there with this 132% apples-to-apples NDR rate.

Yeah, and I want to give one stark example that we discussed before we started recording today, and that's a customer who's doing nothing today but was doing $1 million a year ago. They would be excluded from this calculation, so it could have material impact on what the NDR really is with big customers.

So look, as a disclaimer here, because we're talking about financial things, we don't give investment advice, yada yada, and This definition is like a paragraph long, so go read it yourself. We're doing our best. But when we look at this, it looks to me like it's survivor bias. And yeah, Ray's corner case of, hey, you were $1 million a year ago and you went to zero, you somehow get left out of NDR. I can't think of anyone who gets included badly, to be honest, but it's the people who get left out that bother me in NDR.

Yeah.

Well, let's go to GDR because in the last sentence it says our gross retention rate reflects only customer losses and does not reflect customer expansion or contraction. That is an emergency weather alarm here. So sorry about the beeping, everyone, but we're going to have major flooding here, it says. But anyhow, it's the contraction, Dave. They seem to exclude the contraction for those, for those customers that go less than the decrease.

All right. So yeah, I'm going to just read a little bit of this because I find it quite confusing. As of March 31st, our GRR was 96%. We calculate GRR as part of, as of the applicable period of measurement by starting, starting with ARR from paid customers of more than $10K. So survivor bias right there. So if you're zero, you're out. As of the 12 months prior To such period.

Oh, wait a minute.

By starting with ARR from paid customers of more than $10,000 as of 12 months prior. So this one's not survivor bias, right? They're starting with prior period ARR. We then deduct from the prior period ARR the ARR of paid customers with more than $10,000 who are no longer customers as of the date of measurement. Okay, so they're— that's just such an awkward way of expressing it, but it does seem to catch the people who churn to zero.

Yeah.

And then divide that figure by the prior period ARR to get GRR, which is the percentage of ARR from all paid customers with more than $10,000 in ARR as of the year prior that is not lost to customer churn. I am so confused. And then the sentence that you don't like— well, actually, no, it's 2 more sentences before that. We calculate GRR using ARR from paid customers with more than $10,000 because we believe $10,000 is an important threshold as it is a strong indicator of significant paid usage. Okay. They're defending the threshold. And then the sentence that choked up Ray, our GRR reflects not only— no, sorry, reflects only customer losses and does not reflect expansion or contraction. So it demonstrates that the vast majority of our customers continue to use our platform and renew their subscriptions. Yeah, boy, it's complicated.

Yeah, and the fact that it doesn't include contraction jumped out at me. But to your point, it's not survivor bias. They actually do GRR right. From— they're starting with companies 12 months ago and comparing it to those companies today.

Yeah, and GRR never includes expansion, by the way, right? GRR— the whole purpose of GRR versus NRR is that NRR includes expansion and GRR doesn't. So the— they're, they're making this really complicated. I'm not sure it's survivor bias now. I want to go back and look at NRR to see if it just looks survivor bias but isn't. Uh, I don't think we actually have the sentence here, do we? Um, Oh no, there we do. There we do. Let me just look at this.

They started with the date of measurement today.

Yeah.

Okay. Do you think we can move on to the Rule 40?

Yeah, I think we can. We may have to do a whole episode on that, but I've seen other people on social media raise the same objection that it's not just me and Ray. This is confusing and we think it's non-standard. Go find out for yourself, but there's at least a yellow flag here.

Now under Rule 40, now this uses Jermaine Balls because He wanted to look at the last 12 months free cash flow margin by not including that stock-based compensation one-time hit in Q2 of '24. So he's got the 49% long-term growth rate, last 12 months growth rate, the 28% free cash flow margin from the last 12 months. So that's a Rule of 40 score of 77. And the only one that's even close to that is Palantir, which is at 76, while the median Rule of 40 score is 32 and the top quartile is at 42. So it blows it out of the water from a Rule of 40. And by the way, the Rule of 40 now is the number one variable that's correlated to enterprise value to next 12 months multiples. It's got an R-squared of 0.31, Dave.

Yeah, yeah, yeah. Okay, so, um, So look, I think that this, this alone is going to answer the question, was the, uh, the breakup a good thing? And I'm going to go yes, because they got $1 billion in cash, and yes, because they're going to be worth a ton of money. Somebody did the regression on future valuations. I can't find it, of course. But, um, Ray, maybe you got some numbers you want to talk about in terms of what this thing might be worth.

I actually did it. So I looked at the $821 million, which would be the last 12 months, I then did a third— I applied a 35% growth rate over the next 12 months. And that's the same thing Jamin Ball did. That means their NTM for the next 12 months is $1.18 billion. And then I applied different multiples. If they get a 20x multiple, they'll be at $22.2 billion valuation. So that would be 10% above the Adobe price. And let's just say, because the Rule of 40 is so darn good, they get Palantir-like multiple at 50x, it would be a $75 billion enterprise value. But I think it's safe to say they're going to be at 20x, which would be above their Adobe price of $20 billion from 3 years ago.

Yeah, CJ did some good work on this too. He said that 25x would be a CrowdStrike-like multiple at $27 billion. He has a whole bunch of different multiples, right? At a typical SaaS median, they're worth $6 billion. At a 15x, i.e., top 10 median, they'd be $16 billion. At 20x, they'd be above the offer. At CrowdStrike valuation, they'd be at $27 billion. At Cloudflare valuation, they'd be at $33 billion. You go all the way up to a Palantir-like valuation, which I don't think is going to happen here. Um, but, but who knows? I never thought Palantir would get their kind of valuation. Um, but net-net, I think there's a good chance that they're going to go, thank God we didn't get bought by Adobe, uh, which was really the point of our question. The, the other thing I wanted to say, Ray, Of note, and CJ brought this one up in his post, 6 institutional investors will have positions worth over $1 billion. 3 of them will have positions worth $2 billion. Indexes will be worth $3.7 billion. So in terms of just liquidity for VC, this is a huge event. And it's been one of the biggest challenges in VC over the last 5 years is just getting liquidity. So just to see how much liquidity is going to be coming back to the LPs of these funds is amazing.

Yeah, and if you look at those investors, the Series A, Greylock, Series B, Kleiner led, Series C, Sequoia, Series D, Andreessen Horowitz, and Series E, which was just in June of 2021, Durable Capital. So some big names.

Yeah, absolutely, absolutely. The founder himself owns 8%, which some people might find low, but the issue is when you raise a ton of venture capital, you get diluted. Aaron Levie at Box, I think, only had 4% at the IPO, um, but his 8%, right, smaller slice of a bigger pie, His 7.9% is going to be worth $1.6 billion at a $20 billion valuation. So he did fine too.

So a great S-1 does beg some questions, but definitely going to be a top-tier IPO. And I'm just so glad I had a chance to read this S-1 and discuss it with you, Dave. Thank you so much.

Yeah, thanks a lot, Ray. Great episode. And I hope you feel better.

Thank you.

Take care.

The Metrics Brothers AI, SaaS, and More is a production of The Metrics Brothers Growth and CAC. And a member of the Benchmarket Podcast Network. By accessing this podcast, you acknowledge that the Metrics Brothers make no warranty, guarantee, or representation as to the accuracy or sufficiency of the information provided or the humor content of the jokes told.

Ahem.

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