Here’s a timeless quote from Bill Janeway on how value is determined in startups:

The value now is driven by supply and demand amongst speculators who have liquidity and will not have to stick around to find out what the fundamental value turns out to be over time.

The overall point of view is critical but the core idea to understand is that startup valuations are always supply and demand drive.  So what does this mean?

Because of this phenomenon of bubbles more risk will be taken, more capital will be mobilized than would be the case if investors were strictly investing based upon the net present value of the expected future cash flow, which as I began by saying cannot be determined in plausibly rigorous manner. Now having said all that, one of the laws of life is, as I used to tell my young colleagues, nothing ever sells for 50 times earnings for very long. So when it does, you, who are in a position of influence, have a positive obligation to raise all the cash you can as cheaply as you can, and then distribute as rapidly as you can the liquid securities, which you happened to own.

In other words, understand the context of the early stage tech environment and adapt to it as necessary.

Source:The Future of Venture Capital, Tech Valuations and the Fate of Tech Incumbents – Conversation with Bill Janeway