We've been reporting ominous trends at venture firms' limited partners in recent weeks, including a pullback from VC among University endowments, and some strong-arm re-negotiating from CalPERs.

Dow Jones reported this week (link is to VentureBeat--DJ is behind a paywall) that U.S. private equity firms raised only $25.2 billion in the third quarter, a 70% drop from last year and the lowest third quarter since 2003. Venture Capital raised $8 billion so far this year across 83 funds, a 58% drop from the $18.9 billion across 141 funds by the same time last year.

In sum, the cash raised by VC has been cut in half. The Kauffman Institute anticipates the industry will shrink to half its current size, VCs like Tim Chang and Bill Gurley concur.

But none of this means the familiar VCs we all know and love be serving coffee at Buck's in 5 years. There are plenty of lesser-known firms that will be hit harder--you've probably never heard of most of the names on VentureBeat's VC Walking Dead list.  Established VCs like Vinod Khosla who alone pulled in over $1 billion this year, and Matrix who just closed a $600 million find seem to be doing OK. Even newcomer Andreesen Horowitz raised $300 million.

VC firms may not need as much capital to fund great companies, either, since the cost of innovation has plummetted. Mint.com, which was just bought by Intuit for $170 million, seems to have used very little of its venture capital. It's entire C-round only served to negotiate a higher price from Intuit. The product is essentially a beautiful UI built on top of existing technology. And that kind of service--making complicated tasks simple and easy to use--doesn't always require huge budgets.

We will continue to see evidence that the industry is shrinking, but chances are Silicon Valley won't look that much different as a result.