Michael Moritz, Sequoia Capital

Moritz, a partner with Sequoia Capital, has backed such firms as Yahoo and Google. A native of Wales and graduate of Oxford and the University of Pennsylvania’s Wharton School of Business, Moritz was a correspondent for Time magazine before becoming a venture capitalist. Here’s how he sees the venture capital scene.

Then: “You know, at the beginning of time, whenever that was in the Valley, there weren’t any startup companies. Along the way, obviously, this has become the startup capital of the world, but it’s happened gradually. It hasn’t been an overnight success story. It may have started with those people…at Stanford here (within a couple miles of Moritz’s offices), and Cal. I think it was stimulated by the World War II era and the location of aerospace companies and defense companies here in the post-World War II era.

"And then obviously with the opening of a couple of the early semiconductor companies that in time…attracted extremely smart and talented engineers, and in time these examples of success stimulated other ambitious, eager, frustrated types to emulate the success of people they knew. And today you can walk around the Stanford campus and see buildings that bear the names of people who were students on the campus 15 years ago, and that’s an extraordinary visible testament to the power of creativity that’s resident in the Valley, and the proximity of commerce and academe is an enormous help.”

Now: “Everyone knows that a lot of money came into the venture business, and that led to the predictable result. It’s like too much money going to real estate or any other arena. When you have too much money, bad things are going to happen. The startups in Silicon Valley don’t require that much money. Starting a company, investing in a company, are fairly tricky things to do. It may look easy from the outside, but they’re fairly difficult. And much of that now has come home to roost, so venture firms are going out of business.

"There’s a general pruning going on, and that’s probably healthy. I don’t think that suddenly people have stopped being ambitious, stopped coming up with creative ideas, or stopped wondering about how they can build a new product or found a new company. So it isn’t as if the whistle was blown and human creativity inside the Valley came to a screeching halt. That’s certainly not the case. I think that there were an unsupportable number of venture firms, and the vulnerability and frailty of many of them was cruelly exposed during the last couple of years when there was no place to hide. But at least for us, last year was one of the better years we’ve had in the last decade. So I think if you know what you’re doing, it’s fine.

Alan Salzman, Vantage Point Ventures

Salzman’s firm, Vantage Point Ventures, has made big bets in the cleantech space, as well as more traditional venture capital investments in IT and life sciences. Vantage Point manages about $2 billion.

Then: “I think what Silicon Valley has shown the world, really over the past 30 years—which is the practical lifespan of venture as an industry—is the role that innovation, predominantly technological innovation, but also innovation in business models, can play in changing very large industries. And in so doing, how we as a society function. And I think it’s now been studied extensively.

"There are enough examples that we are all familiar with that it has pervaded the consciousness, and I think increasingly it’s recognized globally as a model for generating growth, goodness, jobs, societal benefits, and so on and a mindset that embraces the change that comes with innovation and sees it as a force of positive development in the world.”

Now: “There’s no question the industry is consolidating, shrinking, in terms of number of players, and thinning out. Lots of people have noticed it. The data is pretty clear. So I think firms that have substantial capabilities and resources that are being embraced by the investment community have an interesting opportunity set right now.

"We see today that Silicon Valley remains the innovation capital of the world as we sit here in 2010. But we’re not complacent about it. We don’t think people should be. We think there’s a tendency in California to take for granted as our birthright the Silicon Valley phenomenon. We think in the United States there is that same complacency. And we’ve done precious little in this country to encourage, facilitate, and foster this entrepreneurial innovation engine. And I think that’s poor policy. And as we look forward the next 20 years, I think unless we as a society pay more attention to and more highly value what we’ve got that is so unique and so valuable, we run the risk of squandering a treasured national attribute relative to other regions of the world.”

Dr. Doug Kelly, Alloy Ventures

Kelly, a medical doctor, has worked with the partners of Alloy Ventures since 1993 and was a founding member of the firm. He currently focuses on investments in medical-device companies.

Then: "Starting with the…patent at Stanford that led to the inception of Genentech, there was a lot of freedom for academics to get involved with startup companies, and this is a pendulum that swings back and forth, whether the universities feel like they’re too tied to industry or they need money and they’ll go talk to anybody. There was that. So there were some early successes in that field at a time when people in larger companies were frustrated either by the lack of innovation at larger companies or their inability to get promoted and do exciting things.

"And a theme that strikes me over and over…that most of us in the venture business, that most of us got into the business, really, it wasn’t about perversely making money. It was about being involved in an area where you felt like you were really advancing the goal of your career…. This was where you came to get that kind of stuff done.”

Now: “There’s not a business that you’re going to back here in the Valley that’s not going to be thinking about, OK, where else can we sell this stuff. And there are lots of smart people everywhere. It’s just that in the Valley, it’s the way people think. So is the Valley getting stale? That’s just crazy talk. The more interesting part of it is on the limited-partner [investors in venture firms] side. They have some real issues.

"Their overall portfolio has shrunk so significantly that their venture commitments are beyond where they predicted they would be as a percentage of their portfolio. And on top of that, not only is it a bigger percentage, but they’re not getting the distributions back that they were counting on to fund future commitments to venture funds. And without that, people are just going to have to start being much more creative about where they’re looking for money.”

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Kent Bernhard Jr. is News Editor of Portfolio.com