Indeed, last month one of Seattle's better-known venture capital firms, Frazier Technology Ventures, said it will slowly wind down operations after nearly a decade in business, a decision that was made as the firm struggled to raise a new fund.

"It is unfortunate, but it is reality too," said general partner Paul Bialek. "The prospects of being able to successfully raise a new fund were problematic at best."

Always Look on the Bright Side

But even with the headwinds, VCs remain guardedly optimistic. So even though Heesen predicts the number of firms will decrease, that doesn’t mean that fewer companies will necessarily get funded. “There is a great deal of innovation taking place, and venture capitalists who have the track record to raise funds will be well positioned to build companies. Most venture capitalists will agree that a smaller industry is a better one,” he said.

On the initial public offering front, the vast majority of those who responded to a year-end survey by Heesen’s organization (74 percent) predict that more than 20 venture-backed companies will conduct IPOs next year, with the average forecast of 26 IPOs. If those numbers hold up, that would likely double 2009’s final tally.

And as the IPO market rebounds, venture capital investors will be reassured that they will be able to exit their investments, said Stephanie McCoy, a former managing director at Meritage Funds, a Denver-based private equity fund.

More than a quarter of institutional investors have told pollsters that they planned to make new private equity investments in 2010. Meanwhile, bank deposits have increased by more than $600 billion, and private equity firms (PEs) are sitting on more than $400 billion, McCoy said at a recent forum.

“Companies are going to be able to access liquidity. I think the first quarter is still going to be difficult, but the second and third quarters are going to be a remarkable change,” McCoy said. “Hopefully the companies that made it through this year can make it through another three to six months.”

Portfolio.com news editor Kent Bernhard Jr. compiled and wrote this report, with contributions from John Cook of the Puget Sound Business Journal's TechFlash blog, Renee McGaw of the Denver Business Journal, and the Charlotte Business Journal.