How Much IPO Pop Is Too Much

The recent Figma IPO on July 31, 2025 priced at $33/share but opened trading at $85/share (+160% !) and closed its first day of trading at $115/share (+250% !!!). Naturally many venture capitalists and early stage investors chafe at this kind of post-IPO performance, arguing that investment banks are poorly pricing these deals and leaving a massive amount of money on the table. Figma sold 12.5m primary shares, raising ~$400m, and the founders and existing investors sold 24.5m shares, raising ~$800m of proceeds, for a total of $1.2bn in proceeds. At $85/share, total proceeds would have been >$3bn and >$4bn at $115/share so they clearly appear to have a point.

However, the bankers along with IPO advisors and some market onlookers argue that because Figma sold <10% of the Company in the offering (36.9m shares held by new investors -- 7.6% of outstanding and 450.5m held by existing investors -- 92.4% of outstanding), there is plenty of upside remaining for the existing investors who have held on to most of their positions and will enjoy the upside. Because existing shareholders are locked up for a period after the IPO, the bankers would further argue that it is important to provide new investors with a gain through a successful IPO and enable the stock price to stay elevated to the lock-up date (180 days in this case) when existing shareholders can liquidate their positions. A final argument for the bankers is that Figma's stock has dropped back to ~$85/share as of today so some of the post-IPO euphoria has already gone.

The real test of whether the IPO has been mispriced is the valuation multiple at pricing vs. trading and whether the bankers should have realized the market would have a massive amount of interest in the first large software IPO in many months. Figma's $33/share price equated to a low-teens multiple on 2026 revenue, and this is for a company expected to grow >35% in 2026 at >20% EBITDA margin (so Rule of 50+ !). While that appears to be a strong multiple versus a software universe that trades at 5-7x revenue, no public software companies currently grow at 30%+ and the best-in-class names such as Datadog, Cloudflare and Crowdstrike all trade in the teens to 20x+ range. Therefore it is entirely possible that the bankers underpriced the deal.

Lastly, the bankers might make some qualitative arguments for pricing the deal where they did. First, given the private market noise around artificial intelligence and much higher multiples that AI companies are receiving in the private market, they might have been concerned that Figma's lack of a 'Generative AI' story might make the offering less attractive to investors. Second, some market watchers believed that investors could be skeptical of the first software IPOs in this market window given that software multiples are much lower than in 2021/22 highs.

While these are reasonable arguments, another compelling data point for pricing the IPO higher is that Adobe announced an acquisition of Figma in June 2022 for $20bn, three years prior to an IPO occurring at the same market cap (mkt cap at $33/share) -- the deal was rejected by regulators causing Figma to IPO instead. While software market contracted since 2022, Figma executed strongly and proved itself as a best-in-class company after the failed Adobe deal so it is odd that the bankers chose to take the company public at the same valuation three years later instead of aiming for a higher value.