Venture capitalists have too much money for the number of prospective investments they can find.

“The traditional venture model seems to us to be broken,” Steve Dow, a general partner at Sevin Rosen Funds, said in an interview.

Sevin Rosen, a 25-year-old firm that is among the most respected in the industry, was in the process of closing its 10th fund and had received commitments from investors for $250 million to $300 million, Mr. Dow said. But in a letter sent to those investors yesterday, Sevin Rosen said it had decided to abort that process.

“We have decided to take the radical step of returning the commitments you have given us for Fund X,” the firm wrote.

Explaining its decision, Sevin Rosen, which has offices in Dallas and Silicon Valley, said that too much money had flooded the venture business and too many companies were being given financing in every conceivable sector.

What is bad news for the VCs is good news for the rest of us. Companies that have great ideas have an easier time getting money. More good business models get funded. We benefit from a larger and better selection of goods and services.

The article reports the firm also complains about a weak Initial Public Offering (IPO) market. Weak? I suspect the market has become more efficient. The Vulture Capitalists brought too many worthless turkeys to market back in the 1990s and now the prospective buyers know to look hard when VCs make extravagant claims about the future prospects of their investments.

To succeed in venture capitalism is going to require more technical and business talent when analysing prospective investments. I expect the efficiency of venture capitalists to improve as a result of the heigthened competition they face. That'll reduce waste. Seems like good news for the economy as a whole.