Valuations are fake from one perspective: that they don't reflect anything more than a handful of investors' decisions to pay for a slice of the company. They

Valuations are fake from one perspective: that they don't reflect anything more than a handful of investors' decisions to pay for a slice of the company. They have very real meaning when it comes to things like employee options and ability to raise money to pay for employees. If a year ago a company raised $10m at a $50m valuation, but now they want another $50m to scale, they'll have to give up a much bigger percentage of stock to do that, which can essentially wipe out any employee stock (founders likely have a different class of stock that isn't as affected). And along the same lines, maybe the company can't raise as much cash as they want/need. In this case, they have to cut back on what they pay employees. In these cases, the money starts to tighten up, and people don't see the reason to stick around SV paying $4k/mo in rent if they're only being paid $8k (before taxes), so they start to look for other places to go. This can lead to a spiral where an otherwise good company can't retain or attract talent, and so the cycle continues (don't hit growth targets, can't raise money at good rates, etc)