SoftBank Vision Fund CEO Rajeev Misra Says Private Markets Are “Overvalued”

Private markets are “overvalued” and need to “rebalance,” said Rajeev Misra, chief executive of SoftBank Group Corp. VisionFund.

Startup funding has exploded and last year has broken records. According to data from CB Insights, venture capital dollars spent on startups exceeded $600 billion in 2021, more than double the highs of the previous year. Valuations have also soared. There are currently more than 900 startups with valuations over $1 billion, CB Insights found.

All the easy money over the past year has had companies attending investor meetings, trying to dictate the valuations they deserve, Misra said Wednesday at an Axios Pro Rata event. But the tone has changed. The founders who once said, “‘Our company is worth $20 billion, send us a term sheet, and we’ll decide who to take the money from’ – here we go,” said the investor. Instead, in recent weeks, some of those same companies that failed to raise funds on the right terms they asked for have returned to the Vision Fund and asked the company to re-engage.

As public markets entered correction territory, some investors warned that a similar cooling could occur in private markets. Many private startups still have higher valuations than their comparable public counterparts, Misra said, a complaint picked up by other investors. Some have urged their portfolio companies to adopt a frugal approach now, in case falling valuations make it more difficult to raise funds in the future.

Misra cited the software-as-a-service market as an example. There, private companies are often still valued at 20 times forward earnings, he said, but in public markets, SAAS company valuations have come down to around 12 times earnings.

“That gap is going to narrow over the next six months,” he said of the gap between the public and private markets.

The Vision Fund exercises greater valuation discipline “in a big way,” Misra said. The average check size for Vision Fund 2 — the new, smaller version of SoftBank’s startup investment arm — is $200 million, compared to about $1 billion for the first Vision Fund.

Outside investors backed the first fund, but SoftBank is only investing its own cash in Vision Fund 2. The fund will eventually take money from outside investors, he said.

Misra also said he was optimistic about business in China, expecting the current “turbulence” to end in the second half of this year.

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