Are we in a valuation bubble? That depends which "we" we're talking about, says Fred Wilson.

The influential New York venture capitalist, whose string of successes includes Twitter, Tumblr and Etsy, believes Wall Street is doing a perfectly responsible job of appraising tech companies. It's his fellow VCs that aren't.

"I think the public markets are doing a very good job of valuing companies," Wilson, the co-founder of Union Square Ventures, said during a rare appearance on CNBC Monday. "I think the private markets are not doing such a good job of valuing companies."

"I think the prices in the public markets are quite rational," he added. "The prices in the private markets are not." 

Over-exuberance in late-stage funding results in companies that IPO only to experience a harsh reality check in their early months of public trading, as both Twitter and Etsy have, Wilson said. "[C]ompanies will come out and go public and the stock will trade below where they did their last round of financing in the private market," he said. "So the private markets need to be ratcheted back."

Otherwise, the prospect of a bumpy public debut only frightens startups into delaying their IPOs, and that's not good, Wilson says. The current trend toward staying private longer, he says, is worsening America's inequality by preventing most investors from participating in the enormous wealth creation happening in Silicon Valley.

Wilson: 

I think companies should be going public earlier in their life cycle so the broader public can be shareholders. I think it's not good for society for all of the gains in these, you know, game-changing companies to be held between a very, very small group of shareholders....[A]ll of the gains are captured among a very small cohort of people. It's just not good public policy.

Published on: May 4, 2015