It's a little more complicated. This will likely mean a good return for the VC funds that invested early. But VC funds to my knowledge don't reinvest returns directly. Rather they raise another fund, often from the same LPs. And note that this usually happens multiple times before the return on the first fund is known.

So it will likely take some time for VCs to liquidate their position, return the capital to LPs, and then have the LPs reinvest in the same or other future VC funds.

All that said, a good return on a single investment will be seen positively by LPs and will make it easier for a VC to raise future funds, which is generally good for startups.

My only real point is that the money made directly from the Square IPO will likely not be deployed for quite awhile, and other events can turn momentum against startups in the meantime.

Trickle down economics has never really ever proved to provide value like that.

A smarter strategy would be to invest more conservatively after a risky yet big one paid off