Figma’s 250% IPO Pop Puts the Spotlight on Underwriters’ Pricing

Collaborative design tool Figma FIG closed its first day of trading at $115.50 per share, giving it a 250% pop on its IPO share price of $33.00. It ended the day with a full-diluted market cap of $47.9 billion. That’s nearly double the $20 billion price tag Adobe ADBE agreed to pay in 2022, before the deal was called off following regulatory scrutiny.

Figma’s hotly anticipated debut, following similar first-day pops for Circle CRCL and Chime CHYM, could entice more unicorn startups to make the leap into the public markets. Tech companies more broadly are also having a strong week. Meta Platforms META stock jumped 11% on Thursday after logging better-than-anticipated second-quarter earnings, while Microsoft MSFT hit a $4 trillion market cap.

“Figma is an incredibly respected brand within Silicon Valley,” says Terrence Rohan, GP at Otherwise Fund and Figma’s first board director. “They could serve as a lighthouse, really, as an inspiration,” he predicts.

VCs are hungry for more IPOs to help them distribute back their limited partners’ cash. Collectively, stockholders offered 24.26 million shares, raking in $807.18 million. Figma’s top investors, including Index, Greylock, Kleiner Perkins, and Sequoia, all sold part of their holdings, alongside co-founder and CEO Dylan Field’s $77.55 million cashout (2.35 million shares). Co-founder Evan Wallace had previously donated shares worth $442 million to a nonprofit, making it a major selling stockholder in the IPO, according to Axios.

Still, Figma’s tremendous debut performance isn’t the norm. A number of companies have had to take significant valuation haircuts when they went public recently—Chime’s IPO in June had a 54% discount from its peak valuation of $25 billion in 2021.

The remarkable IPO pop has become controversial in Silicon Valley. Critics blame underwriters for underpricing the stock to yield higher returns for their clients, while “leaving money on the table” that the company could have raised with a higher price. Benchmark‘s Bill Gurley described the phenomenon on CNBC as an “archaic process that has resulted in massive one-day wealth transfers straight from founders, employees and investors to the buy side.”

Gurley and other investors have encouraged more companies to take the direct listing route, which had a brief period of popularity before the market downturn reversed the trend.

Still, experts caution that stock price sustainability should be the real focus. “By all accounts, Figma is a terrific company with a bright future, but a jump of this magnitude day one often suggests irrational exuberance more than considered valuation,” says Lise Buyer, co-founder of IPO adviser Class V Group. “Managements often select values they feel they can easily justify based on the fundamentals of the business, while the market sometimes says, in effect, ‘Just let me buy some—at any price.’“