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The old mechanism for funding the commercialization of new technologies is in trouble.

In the summer of 1996, Silicon Valley venture capitalists put a few million dollars into a telecom-equipment startup called Juniper Networks. Three years later, after a few more rounds of funding and the release of its first product, Juniper enjoyed an initial public offering of shares, or IPO. At the end of its first day of trading, it was worth nearly $5 billion, and within nine months, it was worth almost 10 times that. The original venture investors, meanwhile, were able to walk away with profits of better than 10,000 percent.

Around the same time Juniper went public, Silicon Valley venture capitalists were putting money into a new networking startup, Procket Networks. This time, the initial investments were bigger, and over successive rounds of financing, Procket collected almost $300 million in venture money. Three years after it started, though, the company had still not launched a product, and in 2004 its assets were acquired by Cisco in a fire-sale deal. This time the VCs walked away with just a fraction of their original investments…

The difference between those two stories is, of course, the difference between the world of the late-1990s technology-stock bubble and the world after that bubble burst. But of late, it also seems like the difference between the historical image of venture capital and the harsh reality of the current business. A decade ago, venture capitalists seemed like genuine alchemists, able to turn even startup dross into purest gold. In recent years, however, the industry has seemed less magical than mundane. Since 2004, its average five-year return has oscillated around zero. High-priced IPOs have become rare events, even as VCs have continued to pour tens of billions of dollars into new companies every year. As Fred Wilson, a principal at Union Square Ventures, bluntly puts it, “Venture capital funds, as a whole, basically made no money the entire decade.”