They're only interested in 10x home runs so valuations are almost irrelevant. Since a finite number of partners can only sit on a finite number of boards, they can't have 50 or 100 investments at lower valuation / smaller sums.

High valuations also pump up expectations on the startup -- which is bad for the entrepreneur because if you fail to hit your goals, it means a down round and a ton more dilution.

A comic strip illustrates the point: http://www.thevc.com/strips/strip38.html

"C'mon folks, we need major cash outlays. [...] Work with me here, we're talking BILLION with a B..."

I think this could also be called an instance of perverse incentive. VC's have perverse incentive to invest more money than given startups need. http://en.wikipedia.org/wiki/Perverse_incentive