If I may, I'll comment to one point that has driven me crazy since the day I got in the venture business. Jerry stated:
"Put yourself in their (VC's)shoes for a moment -- which would you prefer: a 10X IRR on a $5 million investment of a 2X return on $100 million (especially if your 'cut' is 20%)?"Of course, Jerry is right on. And, VC's are not going to change on their own. This is a problem that the LP community needs to address. The more mature LBO industry uses a hurdle rate (generally 8%) to ensure that IRR is the best measure for a fund (IRR is a measure that is affected by time, not just a multiple -- not 10x or 2x per se, but rather 20% per annum, net of fees).
A hurdle rate makes sure that a PE/VC fund (across ALL investments) only performing at a net 6% IRR would generate no carry for the GP. If LP's and VC funds used hurdle rates rather than not, one would expect a natural migration back to more balanced fund sizes that take in to account the world around them (something entrepreneurs & startups are required to do regularly just to stay alive).
I hope that as a community, we begin to see more sub $100M funds created and a return to building companies -- for the real long-term financial return, not just the temporary big paycheck. I hope our LP's and pension fund gatekeepers (and even VC's themselves) begin to see the need to address this (for their own well-being).