The valuations of so-called Unicorns—private companies worth $1 billion or more—are quite high, pioneering tech and media investor Alan Patricof said Tuesday.
"There is no question that valuations are excessive. Anyone who says otherwise is kidding themselves," the co-founder of venture capital fund Greycroft told CNBC. "On the other hand, it just seems to perpetuate itself."
In an interview on "Squawk Box," he painted a worst-case scenario that could eventually cause investor money to dry up. "One of these extraordinary valuations is going to come up short. And you're going to see this next round of valuation, whether it's a 'B' round or a 'C' round is going to be at a discount."
If that happens, he said, venture capitalists could starting getting nervous. "It hasn't happened, in my opinion. I think we're still in a very strong growth trajectory," he said.
There was perhaps a glimmer of this dilemma Monday, when media mogul John Malone's Liberty Interactive, owner of the QVC shopping network, brought online retailer Zulily in a cash-and-stock deal valued at $2.4 billion.
The offer of $18.75 per share was below Zulily's 2013 IPO price of $22.
The challenges that highly valued private companies face is their lack of options, Patricof said. "They are in a position now where the only exit they're really going to have is going to be a public market."
"Once you get into the $3 billion to $5 billion valuation you're going to have to be tested by a public market at some point," he said.