Does the Shutterfly IPO point to venture capital comeback?

Back in the 1990s, if a company said it had Jim Clark as an investor or an advisor, it meant success was practically guaranteed. After all, he co-founded the original dot-com break-out company, Netscape. He was also an old-school tech guy, having founded Silicon Graphics.

But after the dot-com bust, even the mighty Clark was unable to save many of his bets. Rather, it was only a select few dot-coms, such as Google, Inc. (NASDAQ:GOOG), that were able to thrive.

Well, in the New York Times, there is an excellent story on one of Clark's investments (in 1999), Shutterfly, a provider of online photo services.

Of course, in the nuclear winter for dot-coms, Shutterfly had to cut jobs and focus like a laser-beam on profitability. It also required about $90 million in financing.

While the company recently went public, with a market cap of only $315 million, it's certainly not a home-run for the VCs.

And that's a big problem. Even though the IPO market has come back during the past few months, it has not been enough to really help VC firms. Basically, VC firms need significant returns to justify the big risks.

As a result, it would not be surprising to see a contraction of the money in VC funds. For example, there were many funds that were launched in 1999-2000, and funds usually have a life-span of only six to seven years. So if there are mostly losses to show to investors, how many are going to re-up? Probably not a lot.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.