No more lala land for Lala, Imeem, Seesmic, Hi5, Mahalo, Search Me, Zillow, Pandora, ...

But the story is not all bad. 

With VCs being forced to reset expectations, start-ups can now focus on building real businesses. Yes, times are clearly very tough but there is also a large degree of relief for many CEOs.

I had coffee this weekend with a friend who is a CEO of a well-funded start-up. Although clearly exhausted, he was not as stressed as he has been in the last year. "I was forced to grow the company too quickly. Told to hire people before I knew what to do with them and focus on growing top-line metrics. It has all been about positioning the company for an exit, and not about creating a sustainable business. The recession has allowed me to slow down, concentrate on creating a sustainable business, ... which means my interests are more closely aligned with [the VC]".

The New York Times had a fantastic article today which delivers the same point:.

"Lala’s founder, Bill Nguyen, expressed a measure of relief at the chill in the Valley. “This whole economic crisis allows me not to have to grow,” he said. “I view this as a free hall pass.”

For many VCs the game up until now has gone something like this:

Find a company with a massively scalable "growth model" (vs. a rapidly scalable business model) and a huge potential market or lots of possible acquirers; pump lots of cash in and grow it rapidly (don't worry too much about earnings, it's all about getting millions of subscribers or members or streams ... and if possible a strong top-line); sell before the dream begins to fade.

But the dynamic and ethos of the venture capital industry is changing.  And this is a good thing.

Goodbye lala land.