A Kink in Venture Capital’s Gold Chain

The high-risk, high-return venture capital business may have turned into all risk and no return.

That, in a nutshell, is the message that a prominent venture firm delivered yesterday to its investors when it told them that it could not continue to take their money — at least not for the time being.

“The traditional venture model seems to us to be broken,” Steve Dow, a general partner at Sevin Rosen Funds, said in an interview.

Explaining its decision, Sevin Rosen, which has offices in Dallas and Silicon Valley, said that too much money had flooded the venture business and too many companies were being given financing in every conceivable sector.

But excess of capital is only part of the problem, the firm said. In its letter, it bemoaned what it described as “a terribly weak exit environment,” a reference to the dearth of initial public offerings and to a market for acquisitions at valuations that it considers too low to deliver the kind of returns that venture investors expect.