Top venture capitalist says his industry will shrink by 50 percent

Noted venture capitalist Bill Gurley of Benchmark Capital speculated this week, on his blog "Above the Crowd," about the near-term future of his industry. In short, it is not very bright. Gurley outlines why he thinks the sector is headed for a catastrophic but much needed contraction on the order of 50 percent. This is particularly bad for the ranks of marginal VCs who have enjoyed drawing hefty salaries for managing funds that now appear worthless.

But the contraction will be very good for the future of the VC segment. Says Gurley, "We have seen over and over again how excess capital can lead to crowded emerging markets with as many as five to six VC-backed competitors. Reducing this to two to three players will result in less cutthroat behavior and much healthier returns for all companies and entrepreneurs in the market."