Illustration by Jeremy Enecio for Fortune

Something is rotting under Silicon Valley

Updated: Aug 26, 2015 5:02 PM UTC | Originally published: Jun 10, 2015

I spent a good chunk of last week in Silicon Valley, speaking to venture capitalists who mostly wanted to regale me with tales of their portfolio prowess. Sunshine and unicorns all over Sand Hill Road.

When will these folks start getting nervous? Not about rising valuations, per se, but about their inability to get liquidity?

Unlike private equity peers who have been selling everything that isn't bolted down, venture capital is in the midst of an overwhelming buy-and-hold paralysis. Only seven VC-backed tech companies have gone public so far this year, with just one more (Fitbit) currently on the pricing calendar for June. At this rate, 2015 could go down as the slowest year for VC-backed tech IPOs since the throes of the financial crisis. Moreover, there have been only two strategic sales of VC-backed tech companies valued at over $1 billion ( to LinkedIn and Virtustream to EMC).

What good is it to have a stable of unicorns if you don't ever ride them?

In terms of the lack of IPOs, one explanation is that the unicorn crowd includes a disproportionate number of founder-controlled companies, and such folks have little incentive to deal with public market headaches when big mutual fund and hedge fund managers will dip down into the private markets. A less charitable rationale is that too few of these companies have imposed the tough internal discipline -- particularly in terms of burn rate -- that public equity investors demand. Either way, limited partners in VC funds aren't getting paid.

As for the lack of tech M&A, it seems to be both a buy-side and sell-side problem. On the buy-side, corporate development managers say it is difficult to convince their boards to pay premiums to private round prices that, in general, are believed to be artificially inflated (even though many of those boards are sitting on massive cash hoards and their own high stock prices). On the sell-side, there's again the belief that Fidelity or Wellington will be willing to write the next check at an ever-increasing valuation (i.e., we don't want to sell too early and be thought of as the next Instagram).

To be sure, all this could all just be a coincidental calendar blip that presages a post-Labor Day gold rush. But strong public market conditions+high-value portfolio companies should equal big exits. And it isn't.

If I'm a venture capitalist, it might be time to stop staring at the sun and take a peek at the darkening clouds.

Get Term Sheet, our daily newsletter on deals and deal-makers.