Altimeter's Jamin Ball on why Figma's S1 shows the best rule-of-40 profile in public software — and the AI risk question

you to my sleep for getting into saving my life. Lifeaving technology. You heard it here first. Not a health claim. Not a health claim. Not um awesome. We have Ask your doctor about saving your life with an eight sleep. Uh I'm going to uh botch his name. Jaman Champman. Let's bring him in from alimter. There we go.

How you doing? Good. What's happening? How you doing? Great to be here. Kick it off. Great to meet you. Sorry for uh for botching your name on the way in. No, no, given name is Benjamin. Benjamin. My parents called me Jamon as a toddler.

In kindergarten, there were a bunch of Benjamins, so they just told my teacher, "Hey, call him Jamon. That's what we call. " That's amazing. So, I was trying to give it I was trying to give it this like exotic pronounce. We've gotten every variety over the only one that bugs me is Jasmine. Other than anything goes.

Okay. Well, good to meet you. Welcome to the stream ball. Powerful. Likewise. It's fun. Turner and I actually uh good friends in college. It's fun seeing him on the show right before. Amazing. No way. That's awesome. No way. Uh where where did you guys go to school? We were at Stanford together. Oh, okay. Okay.

So, you had a sort of non-traditional background. Exactly. Exactly. Yeah. It's kind of like the Stanford of feeders into VC. Yeah, it really is. It really is. Uh well, it's great to have you on the show.

I feel like uh you guys over at Altimter have just been on a run just uh just also like I feel like uh Invest America is or the Trump accounts is like uh feels like almost an incubation. So, it's been it's been uh Yeah, super cool seeing that seeing that take off and get passed into law. Yeah. Fantastic. Fantastic.

Well, I wanted Yeah, I want to have you on to talk about uh it sounds like you've been digging into the uh the Figma S1. Would love to kind of get get your reaction to it. You had a post uh getting picked up earlier in the timeline. Yeah. No, happy to. I mean, in many ways, Figma is the white buffalo of my career.

It's it's the one that got away. I've you know, been at Red Alimmeter for about five years. This was Redpoint for 5 years before that. And I think the the memory of venture capital that I'll never forget is trying to win the series C.

I think this was late 2018 or early 2019 with uh VC who was one of my colleagues and and Scott who was one of the partners at Redpoint at the time. And you know, we lost to Andrew Reed who's a phenomenal investor at um at Sequoa. But I'll I'll never forget uh forget that round. The Figma series. It's my white buffalo.

He's told us the whole story about how like they brought him into the Sequoia office and they sat Dylan down in the the Brown conference room because at Sequoia they have all of their conference rooms named after their endowment partners and their LPs and they were like look we're investing in you but if you make us money you're helping your school and I thought it was a very interesting roundabout pitch but it's a good pitch.

So, so it got away, but now you're digging in further and trying to understand the business in the S1. What have you learned? What are the interesting takeaways? What should someone even if we just zoom out, what are people typically looking for in a software company going public these days?

Yeah, it's a it's a great question and I'd say in many ways the market needs this type of company to go public. We haven't seen a software IPO really since the Service Titan IPO late last year. If you look at the overall kind of growth rates of the public software universe today, it's it's declined quite significantly.

I think the median growth rate, I I track a basket of about 80 software companies. Uh the median growth rate is about 14%. And that's not what it used to be. You know, we we're not really in this high growth. There's not a lot of high growth software companies that you can buy and invest in.

Figma comes out as a marquee software business. It's growing 49% but what it also brings is 28% free cash flow margins which is which is super rare. The growth in and of itself they would be at least in my basket the fastest growing public software company.

When you add in the free cash flow margins at scale it has this unique profile of growth plus profits which you know rule of 40 is a popular metric a lot of investors look at which just you know adds your growth rate plus your free cash flow margin. they'd be number one on the list.

Uh, and so I think that's that's something the markets are excited about. Um, growth and profitability with a company that's almost at a, you know, billion dollars of run rate.

So the rule of 40 is you add the free cash flow margin to the growth rate of the business on the top line and you should be at around 40% positive, but it sounds like Figma's up at 79% 69% something like that. Like well above 40. Is that right? That That's right. Yeah.

40% is kind of the benchmark for are you considered, you know, a good or great business. And so they they kind of far exceed that. And even when lined up against the rest of the software universe, at least the 80 that I track, that's the it's the highest.

How much credit should we give to where the business is today to all the chaos that happened during the Adobe acquisition?

Yeah, in many ways you got a billion dollar non-dilutive investment through the breakup fee, which sounds like, you know, they obviously don't didn't necessarily need that, but it it it gives them a massive amount of leverage. Yeah.

I'm also interested in in other aspects that could change if you think you're going to be acquired. Like maybe you freeze hiring and that's a good decision and then you wind up um you know actually increasing your margins or maybe it changes the way you think about the business.

I don't make changes like probably when when the acquisition didn't go through. I do remember there was almost an immediate change in how they were doing pricing and billing. Yeah. Sure. Um, that was like night and day pretty much.

I mean, I think it's I think this is a testament to the strength of not just the business, but to Dylan and the leadership team. Having a company go through something like that, most companies don't make it back from that because when as as a customer, you're thinking, do I want to use this product?

What's going to happen when it gets acquired? Is it going to be shut down? Is it going to be a focus? You get a lot of customers who are thinking, I don't know if I want to use this software. you get a lot of new hires thinking, well gosh, I thought I was going to go work for a high growth startup.

Like, I don't really want to go work for Adobe. You know, it's it's the type of people that Adobe attracts are going to be different than the type of people that a high growth startup attracts.

And so, you get a lot of headwinds on the customer front as well as on the hiring front and it can just lead to really negative inertia that's hard to overcome. You know, look at uh you know, Windsurfi.

I'm sure similar dynamics happen there where thought you're going to get acquired, customers think different of you, new hires think different of you. It's it's really hard to come back from something like that.

And the the fact that Figma not only did but is, you know, I think going to be worth a whole lot more than what that acquisition was just a few years ago.

It's a testament to in many ways I think the strength of the management team which again I don't think it can be overstated uh how significant of of an achievement it was for that team to come back from from that moment even stronger than what they were going into it.

the uh I'm I'm curious how you think you know if you were going to you know an anybody that's kind of I trying to analyze the business I think one one thing that'll you know that that you can make a really strong case for why Figma will be a massive beneficiary of AI right I think if anybody uh you know they've had different experiments over the years they have Figma make now um but uh the other side will look at the business and say well if every engineer can generate designs instantly?

Uh, is design software necessary? Do you have do you have a view there? I mean, my my I I've been generally um I'm as somebody that uses Figma every single day and has for my entire career, I sort of expect to use it a decade from now and I expect to use it even 15 years from now.

I I don't know like it's just such core infrastructure to the company. And so that's that's my view. So when people say oh we we want you know like all UI will just be generated but but how are you thinking about that kind of set of risk factors?

It's a great question and and I think what we can do is look back at how the business has executed over its entire life cycle to to kind of get a glimpse into how they might be successful or not in this period of time. I mean, when Figma was founded, the entire industry used a product called Sketch.

And Sketch was almost the equivalent of Excel to an investment banker. And it really wasn't until the series C in Figma where it kind of started to become obvious that wait a second, maybe this product, maybe this startup is actually going to convert the world from sketch to something new.

And for outsiders and even for insiders, designers, the notion of taking away sketch, again, it was like taking away Excel from an investment banker. It was a huge deal. All the shortcuts, the workflows, all of that was just ingrained into your muscle memory. But they were able to do that.

They were able to overcome that. And that is one of the reasons why they're so great today. I think the management team isn't naive, though. They're looking at the opportunity as it exists today, and they say, "Well, we can't afford to be sketched.

We can't we can't let someone Figma us like we Figma sketch you know I don't know seven eight years ago and so it's certainly the thing that is top of mind for them. I look at Figma make as a step in the right direction. I look at the audience the distribution the mind share that they have.

I look at the fact that Dylan is still the CEO.

that's a founder-ledd business that has a history of execution over you know a decade long period and and everything that I believe uh to be true is that they will be successful and then they will be the vendor that kind of capitalizes on this this kind of trend of well do I even need Figma?

I'm just going to prototype in with a prompt and I'm going to you know get my design. I I think it that misses some of the the iterative process of of the design process. Um and so I think it's a risk. Yeah, you can make you can you can make you know anybody that's arguing like all UI will be be generated from a prompt.

Uh you can go back the other way which is I'll just generate designs for the software that I want and understand how the product works and how it flows and all the different functionality and then I'll just generate all the code after you know it can go both ways is yeah and market size.

I mean look if you rewind the clock to the seed series A series B of rounds that FGMA was raising a huge reason not to do the deal was TAM. You'd say, "How many designers are there in the world? What's the price point of designers willing to play? Multiply P times Q. " And like that's your TAM.

I think early on, what did the world get wrong? Well, it was that uh that Q is actually higher. It's not just the designers. You're going to creep into product people. You're going to creep into engineers. And the the people that are going to touch and use the product aren't just that limited set of designers.

I think the same thing is going to happen with AI. Right now all of a sudden you are going to increase the scope and increase the surface area of the types of people and the personas who can interact with Figma in the same way you're seeing with the coding solutions. Right?

Maybe the right way to think about the TAM for a Windsor for a cursor isn't 20 bucks a month because that's what GitHub charges times number of engineers in the world and software engineers. Maybe it's the average salary of a software engineer times the number of software engineers.

Those are two vastly different numbers and I think when we look at how that applies to Figma today, if they get this this shift right, um it will massively expand the personas and the type of people who can and will access and pay for Figma. Makes sense. Very well said. Thanks so much for coming on.

This is really helpful. We should come back on again soon and let's look at the other 80 companies you track. I think Figma just process-wise they'll, you know, supposed to price on Wednesday, trade next Thursday. So, you know, they're on the road talking to investors like us and excited for their debut on Thursday.

Congrat finally own a piece of the exact I texted Dylan and I told him that exact same thing. I'll finally become a shareholder. That's awesome. No longer the white whale. Well, thanks so much for hopping on and breaking it down for us. We'll talk to