So businesses that could have been great bootstrap businesses will grow too fast with too high a burn rate and flame out at a series A or B crunch.
Meanwhile, if the business could have taken it slower they could have built something really valuable for themselves.
Smart, patient entrepreneurs can take advantage of this.
Let angel and VC-backed companies validate markets, and pursue the markets they vacate after the broader crunch occurs.
(This is more like advice to myself actually as I'm currently in a dilemma between that "wait" that you've just described and the intense worry of not getting first-mover advantage through that waiting)
Decentralizing economic power would shift our economy away from capital-intensive moonshots and toward consumer products though.
This was originally solved by selling stock in a venture to the public.
The only difference between a "lifestyle" business and the "Silicon Valley" model is whether you are in control over your own destiny and focused on building a business, or whether you're selling out to people who want to increase your risk and their possible profits, with the expectation that you'll get a nice bonus in your acquihire.
In a way, YC and VCs have ruined startups, by making people think this SV model -- which is great for Facebook, google and yelp, but terrible for the billion other startups is the One True Way.