Yes Sephiroth is mentioned in Midgard in hush tones and he makes a splashy entrance by having his more interesting mother murder a lot of people in the building including the President. The issue is that Sephy never backs up the promise of the Nibelheim flashback, he's nothing but smoke and mirrors. He leaves bodies occasionally by which I mean twice. He then spends the rest of the game just always being out of your reach and just leading your party on. over 30 smurfing hours of "Hey, you might see that badass mothersmurfer who torched Nibelheim but no, he never shows until Disc 2, constantly using Jenova in his form to do his dirty work while he sits in the crater like a materia ice cube. He's crazy, methodical, and cold hearted but we can define most of the FF villains in this way. Sephy isn't a foil to the party for most of the plot. He just comes in to give breadcrumbs and then really does most of his evil deeds in the background while the party ignores the more proactive Shin-Ra who remain a true foil to the party for most of the plot. He's no better than Zemus really, whereas Shin-Ra is more like Golbez. A proper foil who really contrasts what the party is standing for and represents the duality of humankind as opposed to Zemus and Sephiroth who are so alien in nature by story standards, you can't relate to them.

While Sephy is stringing the party along, you discover Shin-Ra is trying to wipe out condors because they are nesting on one of their reactors, polluted the waters of Junon to the point of turning the fishing villages into slums, burned down Coral and killed most of their citizens because they thought they sabotaged a reactor, let Zack's hometown have a meltdown and did squat for the survivors and just left it a hulking crater, rebuilt Nibelheim for Hojo's creepy experiments, and are also seeking Sephiroth for the sole purpose of finding what they think is the Promised Land so they can build a second planet killing Midgard on top of it. They hired people like Scarlet, Heidegger and Hojo who all lack any scruples and are largely responsible for every problem in the story including Sephiroth. Even before that, Midgard represents all the evil that Shin-Ra's out of control capitalism has caused to the world. Are they an evil empire thinly disguised as a 20th century counterpart? Yes, but Sephiroth himself ultimately comes across as a typical cold calculating, smug snake who wants to become a god because he can. He's Zemus with a cooler backstory and Golbez's goal. He burns down Cloud's hometown, he kills Aerith and then he summons Meteor. Shin-Ra did a better job destroying the world than he ever did and they killed people for money which is a bit more sickening than a wannabe eldritch creature with an Oedipus complex trying to follow in his infinitely more interesting mother's footsteps.

Yes there are stories in between all that searching but the writing has not aged well and in hindsight you learn they have certain plotholes or largely didn't matter. What you mainly see in all that chasing downtime is how Shin-Ra really does deserve more of the party's attention than Sephiroth. Until he killed Aerith, the only things he's does up until that point is burn down Nibelheim after discovering he's an experimental tool of Shin-Ra, he breaks the party out of their cells, kills a guy they planned on killing anyway, killed a bunch of mooks your party would kill anyway, and is looking for the Promised Land because Cloud still thinks Sephiroth thinks he's an Ancient. If I were Barret, Red XIII, Yuffie, Aerith, and possibly Vincent; I'd be wondering why the party wasn't trying to recruit him. It's not like he hasn't done anything up until that point that AVALANCHE had not already done indirectly or directly in Midgard. Cloud and Tifa have reasons to hate him but no one else, so why is it so easy for Cloud to convince the others he 's the bigger threat when it's obvious the rest of the cast has a personal vendetta with Shin-Ra or Hojo who show throughout the game why they deserve the proper ass kicking? Compared to other villains in the series and RPGs in general, Sephy's rap sheet is pretty small, whereas Shin-Ra has a far more substantial one. It's the Golbez/Zemus dynamic all over again with the superior villain bowing out for an inferior one. Even Jenova is more interesting just conceptually and she's largely just a plot device to explain all of Sephiroth's powers. She might be a Lavos knockoff, but Eldritch Horrors are so rare in the genre that it would have been more interesting to explore Jenova than her Wilbur Whately wannabe son.

Midgard had themes about industrialization, runaway capitalism, terrorism, and you learned more about the world in those five hours than you did in the next 70 because the rest of the world just reinforces the worldview the first few hours did. You can tell the world is smurfed in the first half an hour of VII without the game even needing to mention Sephy, Jenova, Meteor, and Hojo which is pretty good for an RPG. Midgard had more focus as a narrative as the party had clear and obtainable goals, better pacing of the story and the characters, and frankly didn't have as many plotholes or discrepancies the rest of the narrative is filled with. Most of the game's best scenes and most memorable experiences are in Midgard. No one is crying about Squenix not messing with the boat scene of the party in disguise or Cloud masquerading as a soldier in Junon doing marching drills, but fans will lynch Kitase and the VII team if the cross-dressing scene is changed. Everyone's excited about the Bike chase sequence, but no one is really thinking about the Submarine game or Fort Condor. If VII didn't have Midgard, it wouldn't be half as interesting, that's how powerful those first few hours are compared to the rest of the game which is largely textbook RPG.