That's a very pg way of arguing, but I think it doesn't pay to simplify that much in this case. Both a) and b) can be the product of imperfect information.

If a lot of new investors are trying to enter the market, the only thing they can really compete with the likes of Khosla Ventures with is valuations. Experienced investors are pricing things based on future they feel their experience can help bring about - but newer players can outbid them by simply being less informed. That could lead to a significant over-valuations (by upping the immediate value and reducing the long term prospects) which is going to be bad for the startup.