The most recent issue of Forbes magazine has a scathing article questioning the financial returns being generated by venture capital (VCs) firms.

This article will encourage many institutional investors who serve as the VCs’ limited partners (LPs) to look elsewhere for places to invest their monies.

A broad-based abandonment of the VC community by these LPs will make it doubly difficult for entrepreneurs to find funding in 2009.

Many VCs will be forced to put a moratorium on new investments, others will refrain from making additional investments in current portfolio companies, and some will shut their doors entirely.

Combine the poor track record of many VCs with the downright mismanagement of individual and institutional investments by hedge funds and private equity firms who funneled monies into Madoff’s ponzi scheme, as well as the virtual shutdown of the IPO market, and the prospects don’t look good for funding opportunities in 2009 for privately held companies.

This could significantly slow the growth of the Software-as-a-Service (SaaS), cloud computing and broader on-demand services market.

SaaS, cloud computing and on-demand services companies with strong prospects will still find funding. For instance, Aria Systems (a THINKstrategies client) recently won a new round of funding from Venrock.

However, weaker companies will have a hard time surviving in this more challenging economic climate.

Aria Systems cloud computing Forbes Madoff On-Demand private equity SaaS services Software-as-a-Service THINKstrategies Venrock venture capital