Silicon Valley Start-Ups Awash in Dollars, Again

It's a bubble, but it's a bubble where everyone is acting rationally. Pensions & endowments and other institutional investors have an incentive to purchase these overvalued securities and ever-inflating prices because the value of their cash will drop through inflation. Large acquirers have an incentive to trade their overvalued stock for successful companies under "buy low, sell high". VCs have an incentive to invest in more startups at higher valuations because acquisitions are being made at higher valuation, plus they need to put their investment capital to work. Entrepreneurs have an incentive to found more startups, to capture this investment- and acquisition-money. The ultimate cause is the Fed, which is flooding the economy with money and driving the value of cash down.

BTW, this is how capitalism is supposed to work (except possibly the part about the Fed). Textbooks recognize 3 factors of production - land, labor, and capital - and I'd add a fourth, entrepreneurship, responsible for turning those three into products that satisfy consumer needs. Right now, land is cheap (relative to farming days), labor is cheap, and capital is cheap. The limiting regent is the supply of people with good ideas for turning capital into useful products. In economics, when there's a bottleneck in the value chain, it pushes the returns for that industry up. That's what's happening now, with average returns for entrepreneurs being much, much higher than for the general labor force. As more people found startups, it should equilibrate, so that the returns for entrepreneurship are only the difference between their productivity as entrepreneurs and their productivity as employees.

If history is any guide, it'll last until enough wealth gets concentrated in the entrepreneurial class that the ordinary labor force starts thinking of itself as oppressed and hopeless. Then it usually ends in Depression, war, revolution, or some other major event that kills a lot of people.