From the Wall Street Journal, June 2

The private market is putting bubbly valuations on startups. What if the public market doesn’t agree? And there are magnified potential impacts for California’s state budget, which depends in significant part on capital gains taxes from large investors.

If a bubble is forming, it could create a chill beyond the heated environs of Silicon Valley. Pension funds, hedge funds and mutual-fund companies have been investing heavily in private companies, and any losses they bear could ripple outward. Given how much is now staked on private companies, the potential for losses is enormous.

There are 65 venture-capital backed companies in the U.S. valued at $1 billion or more, by The Wall Street Journal and Dow Jones VentureSource’s latest count. That is more than half again as many of these so-called unicorns as a year ago.

Even by the standards of rapidly growing companies aiming to go public, they are hardly cheap. Uber tops the list with a valuation of $41.2 billion, and that looks like it is heading higher. The Journal last month reported the ride-sharing company is looking to raise an additional $1.5 billion to $2 billion. This would lift its value to $50 billion, or about 120 times last year’s revenue, after accounting for how it pays drivers.

In second, at $16 billion, is Snapchat, which has only recently begun generating revenue. The photo-messaging service’s chief, Evan Spiegel, said last week the company plans an initial public offering, rather than entertaining offers like the nearly $3 billion Facebook put on the table two years ago.

Overall, private valuations are about as high now as during the dot-com bubble, according to research firm Sand Hill Econometrics. One reason valuations are so lofty: In an era when generating outsize returns has been extremely difficult, big investors who previously would have tended to take a position in a company on its IPO are instead jumping into late private-funding rounds.

But investors in private companies are taking risks investors in public companies aren’t. Chief among these is the ability to easily sell, notes Warburg Pincus venture-capital veteran William Janeway.Meanwhile, the list of tech companies with deep pockets and a desire for acquisitions is pretty short, and the fit needs to be right.

So for most big venture-backed companies an IPO is a likelier exit. But the public market’s ability to absorb those companies may be limited.

Sand Hill estimates the total value of U.S. venture-backed companies came to about $750 billion at the end of 2014. That is equal to 2.5% of the total market capitalization of U.S. public companies, according to Federal Reserve data. The only other time venture-backed companies were valued that highly relative to the stock market was in the second quarter of 2000, when the dot-com bubble began to rapidly deflate.

Indeed, one pin in that bubble was the flow of shares of speculative companies into the market. Until late 1999, the availability of dot-com shares was limited, with many held off the market by insiders subject to lockup agreements.

From November 1999 to April 2000, though, the amount of unlocked shares rose to $270 billion from $70 billion, as economists Eli Ofekand Matthew Richardson documented. This increased the float in dot-com companies to the point there weren’t enough investors willing to pay up for them.

Now, there is a risk that even the limited amount of shares that become available with an IPO might be more than the market can stomach. Lately, stock investors’ enthusiasm for new tech companies hasn’t always lived up to private investors’ expectations. Apigee and Box, which both went public this year, carry lower market capitalizations than implied by their last private funding rounds.

Perhaps this represents only a momentary lapse. And, even if what is happening is a bubble, bubbles often last longer than skeptics think possible.