If SF VC funding were somehow constrained to $1b/yr, you'd get crazy percentage returns, since either only the top deals would get funded, or they'd be funded at super-favorable valuations (allowing more deals on the same money).
Seed and maybe A are not capital intensive, and are probably constrained by great ideas, founding teams, and early entrepreneurial employees. But I don't think VC is the right way to finance lower risk later stage stuff; the public markets could do a good job, and it would be a lot easier for risk-seeking investors (individuals or institutions) to get in and out of investments vs. being LPs in funds, and with lower overhead.
Turn it around, to cash out, is your objective an IPO or acquisition by another company?
Further, the sharp decrease in VC returns means less in the pockets of founders and early employees, and therefore less smart money in the game. Heck, you mentioned Elon Musk's Tesla and SpaceX, his money to get them going comes from PayPal, which was bought by eBay in 2002 (by then it was already getting very bad---granted, that was when the dot.com and post/911 crash was playing out---but SarBox is generally viewed as the last nail in the coffin).
1) Big non-US market growing up (probably in Asia, but possibly in cypherspace), with more rational regulations
2) Massive slowdown in tech progress (which one might argue is underway, but not as obvious; if it accelerates, it will be obvious)
3) Some way for PE to take over from public markets. Content to sit on revenue-generating companies throwing off cash. This already seems to be happening; I'm not sure what the tax consequences are, but I suspect they're smart/powerful enough to either financial engineer or politically engineer a solution.
All of them suck for different seasons. #2 is probably the worst for me personally.
Interesting (and fairly recent) analysis of VCs from the point of view of a limited partner with investments in a range of VC firms: http://www.kauffman.org/uploadedFiles/vc-enemy-is-us-report.....
The mediocre return of VCs also says something about Silicon Valley. The idea of venture-capital funded startups as some exceptional economic engine is probably a myth. There is a lot of economic activity in Silicon Valley, no doubt, but you have to distinguish between expenditure of capital and return on capital. $20 million spent on a startup that never ends up making much revenue is not a net gain to the economy even if it shows up as economic activity. It's just expenditure of capital. So the success of specific VCs aside, the way to measure the economic contribution of VC-funded startups is by looking at the return on investment of the sector as a whole. And since that return isn't great, relative to blue-chip companies, that tells us one of two things about the sector:
Either: 1) VCs aren't great at the job of allocating capital to the right places; or 2) VCs are doing the best job they can, and its just inherently difficult to separate the winners from the losers when it comes to startups.
My gut feeling is that the answer is (2), which implies that the nature of the industry is such that it's so hard to separate the winners from the losers that the gain from the exceptional success of the winners is largely offset by the cost of funding the losers, which makes the economic returns from the industry as a whole unexceptional compared to the returns from traditional blue chip companies.