[URSpider94]

How could it make sense for pre-IPO investors to value a company more highly than the public markets would pay? Where, then, would those investors be hoping to earn a profit?

Put another way, the public markets are an auction to the highest bidder. If there are a group of people out there (let's call them VC's) who think that Square is undervalued at the IPO price, then they should be buying up all the shares that they can get their hands on, until the price reaches their expectation of a fair valuation.

I would say that an interpretation more consistent with the facts is that the expectation value of Square has dropped significantly since the last fund raising round.