SoftBank, Sequoia warn of imminent correction in private tech markets

Bengaluru/ Mumbai: Two of the most influential tech investors globally have signalled an impending softness in private valuations amid a major correction in the US public markets, which has pummelled tech stocks. SoftBank Vision Fund CEO Rajeev Misra, in a virtual event organised by US news site Axios on Thursday, said
private markets are “overvalued” compared to the public markets and that a rebalance is on the cards. “If the public markets stay where they are, then the private markets, which are overvalued, have to rebalance. And we’re seeing that already,” he said.

Echoing Misra’s sentiments, Sequoia India managing director Shailendra Singh said on Twitter that he was looking forward to a much-needed correction in the startup funding environment and that thankfully, conversations are back to focusing on revenues, products, unit economics, and saving dollars.

The potential slowdown in deal-making and valuations this year follows a record-breaking year of funding in which Indian startups
racked up more than $36 billion in capital as reported by ETtech last month. More than 40 new unicorns were minted in 2021.

The unprecedented year for Indian and global technology startups,
which also saw a slew of companies go public, started to show signs of a slowdown when investors dashed out of high-flying tech firms in the US. The move was in anticipation of an increase in US interest rates by the Federal Reserve to tame inflation in the country.

The poster child of Indian software-as-a-service (SaaS), Freshworks has been beaten down to half of its market cap after its Nasdaq listing in September last year. Currently, the company’s market cap is at $5.8 billion, having hit an all-time high of $13.5 billion in early November.

The comments from Misra and Singh are significant as their funds power a significant number of deals in India and abroad. This also means companies will have to readjust their valuation demands. “I think some of it (correction) is visible (and the pace at which deals will close will also slow down. Startup valuations have been overheated throughout last year and a correction was overdue,” said a founder of one of the highest-valued Indian startups, which counts Sequoia Capital among its investors.

Tiger Global, the New York-based investment fund that has been instrumental in driving up the number of unicorns in India,
said it had clocked losses in 2021. This was attributed to the free fall in tech stocks in the last two months of the year.

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Technology stocks in the US have taken a severe beating as part of the broader route in the public markets. The technology-focused Nasdaq 100 has dropped 1.3%, which is 10% lower than the November high last year, Bloomberg
reported on Friday. Separately, Peloton, the exercise bike maker, which gained massive traction induced primarily by the pandemic,
saw an erosion of more than $2.5 billion in its market capitalisation following reports by CNBC that it was temporarily pausing production of new equipment amid reduced demand.

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