The $15 billion valuation bestowed upon Facebook during a Microsoft-led fundraising round a year ago was a watershed event that many saw as the most obvious sign that Web 2.0 companies had entered bubble territory. 

But that valuation always had an asterisk, because Microsoft wasn't making the investment to get a return on its capital directly. It was willing to pay up to extend its advertising and search deal with the social network and block Google from getting its foot in the door.

Some recent stock sales by executives, as well as an internal valuation the company did for the IRS, have pegged Facebook's value for everyone other than Steve Ballmer and holders of preferred shares at closer to $4 billion.

By traditional metrics, that number still is frothy, given that Facebook's sales this year are expected to be in the $300 - $400 million range. Other Web 2.0 firms have also been richly valued. 

Ning and Slide, for example, have both raised rounds valuing them at half a billion dollars, while Slide rival RockYou earned a $400 million valuation in its latest round.

Yet Peter Thiel, whose Founders Fund has invested in Facebook, Slide and other Web firms, argued this week that at the TechCrunch 50 conference that such companies not only deserve those valuations, but that their growth rates make them a bargain.

In an onstage interview with Michael Arrington, Thiel alternately described Facebook as "undervalued" and Slide, which develops applications for social networks, as "cheap," adding that the entire Internet sector in which he's invested millions is "systematically undervalued."

It's easy to come up with arguments for or against Thiel's own. Some companies grow into their valuations while others flame out, and whether a bubble is good or bad depends on when you hit the "sell" button on your broker's Web site.

What's interesting is Thiel's definition of a bubble (or a lack thereof), which shows how much has changed for VCs from 10 years ago.

"We're not in a tech bubble. You can't have a tech bubble if there are no IPOs," said Thiel, referring to the fact there were zero initial stock offerings of a venture-backed companies in the second quarter of this year.

That argument suggests that you can only have a bubble if institutional investors -- the traditional buyers of IPO shares, just before they're sold to retail investors -- are snapping up private-company shares that are overvalued by traditional metrics.

Yet in many cases, that's exactly what's been happening, as major institutional investors such as T. Rowe Price and Fidelity invest in late-series rounds of Web 2.0 companies.

In other words, the Series D round is the new IPO.

The difference is that mom-and-pop investors are being shielded from the risks -- and potential rewards -- of investing in the world's fastest-growing tech companies.

A decade ago, Facebook would certainly be a public company by now, and in the frenzy of the late 1990s, Slide, RockYou and Ning would probably have garnered Nasdaq tickers as well.

But a sudden investment discipline by professional money managers isn't the primary reason for the dearth of tech IPOs.

The turmoil engulfing Wall Street investment banks has at least as much to do with the dearth of new offerings. It's hard sell one when you can't ensure the buyers that you're firm will still be around in its current form by the time the issue comes to market. Just ask investment bankers at Bear Stearns or Lehman Brothers.

Add to that the fear of the public markets and you have the perfect storm that has slammed the IPO window shut.

But this hasn't stopped the sale of private company shares -- it's just cut the underwriters and retail investors out of the equation.

In other words, the Web 2.0 bubble can only get so big while the real estate bubble is still deflating.

For now, the only buyers of Internet startup shares are either professional money managers and high net worth individuals with access to late-stage venture deals -- or corporate acquirers like AOL, which bought Bebo for more than $800 million.

Such acquisitions have been the main liquidity event for VCs for the last several years.

Like the valuations of Facebook, Slide and Ning, they certainly hint at a bubble, just not one that can generate the kind of spectacular returns like those enjoyed by VC firms a decade ago on eBay, Yahoo and Amazon.

To generate those, you need access to the public stock markets.

To generate those, you need a bubble big enough for everyone to float around on for a while until it pops.

(Full disclosure: Thiel is an investor in Vator.tv)