Figma's blowout debut proves Wall Street forgot how much investors want tech IPOs

Figma's recent IPO has sent shockwaves through the tech industry, highlighting an astonishing demand for new tech listings that Wall Street seemed to overlook. On its debut day, Figma's stock opened at $85, more than double its initial offering price of $33, and ultimately closed with a remarkable 250% increase. This marks the most significant first-day surge for a U.S. IPO of its size in over thirty years. Experts attribute this impressive stock performance to Figma's robust profit margins, steady revenue growth, and strong presence in the design software market. However, some analysts suggest that the magnitude of Figma's rise is not merely about its business fundamentals but rather indicative of a broader market frenzy for tech IPOs that its underwriters underestimated. Tanay Jaipuria, a partner at Wing Venture Capital, noted that Figma's lead underwriters—Morgan Stanley, Goldman Sachs, Allen & Co., and JP Morgan—miscalculated the market's appetite for the IPO, inadvertently sidelining retail investors from a significant share of the stock's gains. He observed, "Retail feels very strongly when you see these big pops that the system's a little bit rigged." Despite the high valuations, Jaipuria argued that Figma's stock price wasn't incorrectly set based on its financials. Instead, the surge reflects strong demand for tech listings, as seen with other recent IPOs like CoreWeave. "From a fundamentals perspective, should Figma be at $60 billion? Probably not, but the eagerness from investors for high-quality companies is clear," he explained. Critics have pointed out that the banks involved may have left billions in potential profits on the table. Benchmark general partner Bill Gurley remarked on social media that the IPO pricing did not align with supply and demand, which ultimately cost Figma's selling shareholders billions in additional earnings. After a lengthy drought in tech IPOs over the past three years, Figma's success may open the floodgates for other venture capital-backed companies considering public listings. The general sentiment indicates that if Figma can thrive in such a volatile market, other startups might soon follow suit. However, while Figma's IPO has garnered significant attention, some experts caution that the stock's value could decline after the six-month lockup period ends, which might see early investors cashing out at elevated prices. The stock traded erratically on its second day, opening at nearly $135 before falling below $111 shortly thereafter. As David Erickson, an adjunct professor at Columbia Business School, noted, "Over the short term, you can see aberrations like this. Over the long term, valuation tends to win out."