While the current slowdown is definitely painful for many startup companies, the big picture is actually not so bleak. Most experts agree that the current slowdown will last for about 2 years. This is roughly how long it takes a tech startup to release its first product (depending on many factors, of course; building Internet sites takes much less, developing new drugs takes much longer). Therefore, now is the time to start a company and be ready to meet the market when it needs your product.
On the supply side – from the LP perspective, venture capital is actually not such a bad idea compared to other investment opportunities. VC investments are risky and volatile; downturns should be planned for. Traditionally conservative investments like real estate did not fare so well recently to say the least, and so did other channels. LPs still have money to invest (though admittedly less), and some of it will find its way into venture funds. I therefore find it hard to see the VC well drying up any time soon. Yes, it’ll dwindle some, but won’t run out.