Just How Short-sighted is the VC Community?

The State Science and Technology Institute just released an analysis based on the MoneyTree Report.  The primary point made is that Venture Capitalists are increasingly making their investments in later stage companies.  Early stage investments are decreasing in general and specifically start-up and seed investments comprise less than 4 percent of venture investment.  OK, so who is funding the early stage companies?

Today, by far the largest seed capital fund in the country, the SBIR program, is run by the U.S. Government.  It amounts to $2.2 billion dollars annually and is given to companies that want to develop new technologies into viable products.  Generally it is given out in a $100,000 first round and a $750,000 second round on a competitive basis.  Doing the math, you see that several thousand new ideas get funded each year. 

The VC community is pushing changes through Congress that will convert the SBIR program into one that helps leverage their private investments in later stage companies with public money.  Sweet deal if you can get it.  But other than using taxpayer money to make the rich richer, what is the cost?  Well, how about several thousand new ideas that may not be funded each year?  Since VC are not investing in early stages, where are the future later stage companies going to come from?  Is the VC community going to feast in the short-term by siphoning off the SBIR funds and drying-up the pipeline they drink from?  Just how short-sighted are they?