Michael Kwatinetz was beaming tonight as he toasted a small crowd at the Kokkari greek restaurant in San Francisco.

His firm Azure Capital Partners scored big today, when eBay announced that it had aquired Bill Me Later for $945 million. Azure was the largest investor in that Bill Me Later. The sale is the biggest venture-backed exit for a technology company this year, at a time when there are very few such sales being made.

Kwatinetz (pictured below) last night presided over the firm’s annual dinner with the chief executives of the companies it has invested in, as well as some members of the press.

There was plenty of wine, lamb chops, and flaky spanakopita. As dark days approach for the economy and exits of any kind, we’ll see if dinners like these become a scarce commodity. It wasn’t quite a bonfire of the vanities. But maybe in the years ahead, I’ll kick myself for not taking a picture.

Azure had invested in Bill Me Later seven years ago, in the wreckage of post-9/11 Silicon Valley. Azure did well, because it led a “recapitalization” of the company, buying out earlier investors in the company who were disillusioned with e-commerce after the dotcom collapse — and doing so at a low price. The company’s investment paid off with a decent return. All told, Bill Me Later raised about $300 million and it sold for a valuation of seven times 2009 revenues. The return for Azure Capital, which invested at a valuation in the low $20 millions, was in the five times to seven times range.

VCs generally expect to wait for a return, and seven years is standard. But now it’s a time of fear again. Spin-outs and recapitalizations are bound to become more prevalent. The folks at Cooking.com, another one of Azure’s companies, see a silver lining in the economic mess. The company’s breakfast-related products are becoming more popular as people prepare more elaborate meals at home. The population is starting to “cocoon” again, just as it went indoors and battened down the hatches after 9/11.

Bill Me Later set itself apart by looking at the web as a platform. It integrated a bunch of consumer services on top of the platform and delivered something novel: instant identification and purchase approvals for e-commerce customers. It became an “arms dealer” that sold this service to a wide array of web sites, Kwatinetz said.

Another arms dealer in the crowd was EZ Rez, which helps the airlines out by creating the package deals that upsell ticket purchasers to hotels, tours, rental cars and other deals. Azure Capital backed EZ Rez because it had the potential to make many sites more successful.

Azure is also investing in topic-specific sites, including Education.com, which has five million hits a month and a million unique visitors, and TravelMuse, which debuted at the recent DEMOfall 08 conference and lets you plan a vacation and then share it with family. You can take into account every family member’s tastes and then schedule it so everything fits.

It was one of those dinners where doom and gloom didn’t dominate the conversation. The question of the day is what strategy will succeed now. Will one of these new companies be a billion dollar exit, maybe seven years from now? Or are the days of wine and lamb chops numbered?