True. The question is how much the VC thinks that accumulated advantage (in sociology, "the Mathew effect," according to which the rich get richer) means that a

True. The question is how much the VC thinks that accumulated advantage (in sociology, "the Mathew effect," according to which the rich get richer) means that an increased present valuation can increase the probability of future increases in value. And if the VC thinks that the upside is big enough — e.g., the next Uber — then 1% equity could be worth a billion dollars in the foreseeable future. The trick to black-swan farming is casting a big enough net. And liquidation-preference makes it possible to take more bets by significantly decreasing downside risk on each one. Obviously, we are aren't dealing with a linear relationship. Once companies reach a certain valuation, the prospects for future growth are significantly reduced. But there may be an intermediate stage where the benefits to the company are significant enough that the VC's probable ROI increases by investing at a higher valuation. A VC who really wants to game the system should make a large seed investment at a low valuation, and then make smaller investments in later rounds at intentionally inflated valuations.