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File this one under is it wishful thinking or is it a real trend?.

One swallow does not a summer make, but consider this:

• Someone I was meeting with yesterday said that they were winding down their venture fund because they had incurred heavy losses and concluded that they needed to stay closer to their knitting.
• John Bennett makes the point in his blog that Cloud Computing offers unprecendented opportunities for small- and medium-sized businesses (SMBs).

What does this have to do with Venture Capital?

• Cloud computing makes it possible for startups to go after a niche SMB markets of the type John outlines.
• Such a startup may not have the infinite potential of a Google or Facebook, but making a $20-50M company out of a $1-2M investment is pretty nice returns, even for a VC.
• Seed-stage venture firms such as Launch-Capital have come into the market with a different model — and done well even in this economy. Their model is different in that they make more small-dollar deals rather than fewer large-dollar deals.

Might other VC firms go the same way? Your thoughts?