I’d discussed changes in the VC business before in a few posts. Today, Fred Wilson calls it the signals of The Zero Billion Dollar Fund, inspired by this post by Bill Burnham.  Burnham points out:

The bad news for large VC funds is that if my recent conversations are
any guide it seems like more and more entrepreneurs are picking up on
the implications of these dynamics and adjusting their behavior
accordingly.  These changes could lead to a serious case of adverse
selection, wherein the best entrepreneurs with the most capital
efficient ideas either self-fund or raise money from angles while only
relatively risky ideas with large capital requirements seek capital
from large funds.

Fred foresees a disruption in the VC business.  The squeeze is playing out like this:  On one side, you have large funds like Redpoint’s latest at $400m and Kleiner’s 12that $600.  On the other, you have USV with $125m, Patricof with $50m.  I like Fred’s description of the "Zero Billion Dollar Fund":

We have this saying around our firm, the "zero billion dollar
business".  It describes a business, like Craigslist or Digg, that
enters a market, like classifieds or news, and by virtue of the amazing
efficiency of its operation can rely on a fraction of the revenue that
the market leaders need to operate profitably.  These zero billion
dollar businesses are highly disruptive and change the economics of
their industries over time.
…
Union Square Ventures was designed as a "zero billion fund" in a sense.

This thinking is similar to how I see the budding VC market in Turkey.  Even in the private equity market, the funds are not having an easy time deploying their capital.  In the earlier stage side of the market, that problem will be even more critical.  Calibration will be a key factor for the funds here.