When a start-up raises at a valuation that is high, most assume current owners win and new owners lose. Yet I contend that everyone loses.
Setting a val that is too high means the profits needed to achieve a decent return are sky high. More importantly they are different from the early investors/founders.
How much of Twitter's recent strategy is being driven by their multi-million dollar investors (at multi-billion vals) wanting clarity on an exit plan? These guys put large quantums of money in and are pushing hard for dollars back. IMHO, they'll tank the company - all because they raised too much at too higher val.
At the end of the day it's best to have everyone in the company (post-deal) feeling like they got a good deal. Kinda like a partner/wife - you never want to feel like you're the one that's trading down in the relationship.
Same can happen at seed.
Disclosure: I invested in a YC company this round.