Daniel Primack asks this question in his latest newsletter:

Sevin Rosen Funds has indefinitely postponed fundraising for its tenth fund, which had been scheduled to hold a first close this week. This is being treated as big news in VC circles - particularly among the battering blogbobs - because SRF is not citing the typical excuses of partnership strife or fundraising difficulties (i.e., Mobius, Worldview, etc.). Instead, it claims that the VC model is "severely damaged," and that it will not raise additional capital until it funds a responsible solution.

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Dow also does not believe that the M&A market can adequately make up for IPO market failures, because VCs have created a buyer's market by over-funding just about every sector. Sure there are a few homeruns, but a surprisingly high number of M&A deals actually are $1 dispositions that don't get included in the quarterly "disclosed value" data. And, without a viable exit market, VCs are setting themselves up for a second-straight decade of cash-on-cash losses (which could begin in 2008). SRF doesn't want to be a party to that.

Why? Because Anderson, et all realize that a strict early-stage discipline - with just a few opportunistic expansion plays -- can still produce strong results. Even Dow acknowledges that some of SRF's best hits lately have come from companies that it seeded, not from ones it jumped into bed with at Series B or Series C. Too many firms have spent the past few years rushing downstream in the name of risk aversion, without realizing that the water is actually safer up above. These shops might get shaken out when all is said and done, but that's more on them than on the VC model itself (which they abandoned).

The exit environment is undoubtedly tough, but early-stage investing means that you don't need your average exits to be quite so enormous (since your starting valuations are lower). This opens up plenty of alternative exit avenues, including reverse mergers with public shells, AIM-listings and sales to small-cap or mid-cap buyout firms. Marry a few of these with one or two homeruns - which VC funds of any era have required for success - and you've produced strong ROI for your limited partners.

Obviously the VC industry as a whole is not broken and there is besides the usual cycles real money that is being made for the avaerage investor.

But its interesting to see that some investors have rediscovered the early-stage niche with its low valuations and small deal sizes. After the abondonment by so many firsm it has become a valid biche again that is certainly worth investing into again.