The reason pre-IPO valuations continue to be insane is because the whole process has become akin to a Ponzi scheme, albeit one with a “bigger fool” exit strategy. Earlier investors hope they can eventually get out with a gain even if the investment makes little sense from a valuation perspective because there likely will be “bigger fools” further down the road willing to price higher valuations. So even if Unicorn ZYX bombs after its IPO, the early guys — provided they had the right protective provisions — will still do very nicely. The later-stage investors get burned, but most people are so easily swayed by hype and fear-of-missing-out that it seems there’s a never-ending pool of such folk ready to throw other people’s money at “red hot” companies. Until the later stage folk wise up, the valuation bubble will persist.
Which is, frankly, mad. “The more you lose, the more you’re worth” never made sense and it doesn’t make any less sense merely because it continues to persist.