Startup funding has been booming, and last year shattered records. According to CB Insights data, venture dollars spent on startups exceeded $600 billion in 2021, more than double the previous year’s highs. Valuations have soared, too. There are currently more than 900 startups with valuations of over $1 billion, CB Insights found.
All the easy money last year resulted in companies swaggering into investor meetings, trying to dictate the valuations they deserved, Misra said Wednesday at an Axios Pro Rata event. But the tone has been changing. Founders who once said: “‘Our company is worth $20 billion, send in a term sheet, and we’ll decide whose money to take’ — that’s gone,” the investor said. Instead, in recent weeks, some of those same companies that didn’t succeed in raising cash on the rich terms they asked for have come back to the Vision Fund and asked the firm to reengage.
As the public markets have entered correction territory, some investors have warned that a similar chill could come to private markets. Many private startups still have higher valuations than their comparable public counterparts, Misra said, a complaint echoed by other investors. Some have urged their portfolio companies to take a thrifty approach now, in case a ratcheting down in valuations makes it harder to raise cash going forward.
Misra cited the software-as-a-service market as an example. There, private companies are often still valued at 20 times forward revenue, he said, but in public markets, SAAS company valuations have come down to about 12 times revenue.
“That gap is going to tighten over the next six months,” he said of the discrepancy between public and private markets.
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The Vision Fund is exercising more valuation discipline “in a big way,” Misra said. The average check size for the Vision Fund 2 — the newer, smaller version of SoftBank’s startup investing arm — is $200 million, compared to about $1 billion for the first Vision Fund.
Outside investors backed the first fund, but SoftBank is investing only its own cash in Vision Fund 2. The fund will take money from outside investors again eventually, he said.
Misra also said he was optimistic about companies in China, expecting an end to the current “turmoil” in the second half of this year.
