Yeah; this happens a lot with big tech IPOs. Typically they will spike on day 1 with lots of individual investors buying in to the hype train. I would expect to see Square drop precipitously over the next week/month as the professional investors can make money by pushing the valuation down, then it'll stabilize somewhere near the IPO price in 6-12 months. Company fundamentals have very little to do with share price in the first year or two of an IPO; it's almost entirely psychological.

And nobody's been claiming that late-stage investors are dumb; in fact quite the opposite. Late stage investors tend to be very large, professionally managed equity funds - they are as savvy as investors get, and they're strong-arming early stage investors into unfavorable liquidation preferences. They're also the type of investor to have media / analyst contacts they can use to push down the IPO price knowing that it's going to pop. The discussion with late stage investors is really "the fact that late-stage investors are sucking up a disproportionate share of the profits from unicorn exits is endangering the VC investment model".