There was a strained, unreal air today hanging over Silicon Valley’s Rosewood Hotel, the newest addition to the local venture capital enclave on Sand Hill Road.

This was the setting for Tony Perkins’ annual Venture Summit – always one of the best places to check up on the mood of the Valley’s start-up financiers.

What made it unreal was an odd blend of gallows humour and expectant anticipation. Even in the worst of times, these professional optimists can still find something to look forward to: it’s spelled I-P-O.

First, the unpalatable truths.

Bill Gurley of Benchmark Capital, who has made a speciality this year of kicking his fellow venture capitalists when they’re down, laid out his now-familiar argument that the venture world is about to shrink by as much as half. Much of the cash that flowed into venture funds this decade was just the by-product of excessive liquidity in all corners of private equity, he said: “We were just by-standers.” The halving of fund-raising this year is something Sand Hill Road will have to get used to.

A coming “green” bust was also very much on everybody’s mind. There are hundreds of start-ups that have taken early rounds of venture capital but now have no way to scale up to a level that will prove their business models work, said David Cowan, a partner at Bessemer Ventures: “There is going to be a huge loss taken on most of those companies.” Noone rushed to contract him.

How odd, then, that this is also the moment that the IPO window is finally opening again. As we wrote earlier this week, there is a race on in Silicon Valley for private companies to file the necessary papers to go public.

Todd Chaffee, a partner at IVP, promised “some very big, high-profile IPOs next year.” Mr Cowan estimated that “there are at least 100 venture-backed companies that are planning to file for an IPO” – not bad considering that fewer than 20 have made it to Wall Street since the beginning of 2008.

Is this realistic, or just whistling in the dark?

Probably a bit of each. Certainly conditions are better than they have been for a long time, and the recent trickle of tech IPOs has fared well. But by most estimates there are far more companies looking to file than are likely to find a market.

Given that it will be a make-or-break year for many of Sand Hill Road’s inhabitants, the slightly strained air of optimism is understandable.

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