(Editor’s note: David Millard is Chair of the Business Department of Barnes & Thornburg LLP. He submitted this story to VentureBeat.)

As with many other industries, the days since the 2008 crash have been “dog days” for the venture capital industry.

Racked by a dearth of attractive exit opportunities, venture capital returns over a ten year time horizon have fallen to sub-par levels and the venture capital industry has begun to shrink as a result.  Not surprisingly, investment in venture capital funds has been tepid at best since late 2008, as the typical investors in these funds see their net worths slashed. The slow recovery of the economy has further dampened their enthusiasm.

Many venture capital funds still had money to invest, but  slowed down their funding when exit opportunities became harder to see.

Slowly, though, venture capital activity is beginning to reignite as the IPO window reopens slightly and M&A movement begins to pick up (however sluggishly).

The total number of venture capital exits has fallen year-over-year since 2007 – but the first half of 2010 saw a modest (and long awaited) upward swing in IPOs and buyouts.  Over the same period there has also been an increase in the number of investment banker engagement letters being signed.  This signals a continued increase in M&A activity, since a transaction typically follows within six to nine months after the investment banker engagement letter is signed. For entrepreneurs, this could signal an increase among VCs in making new investments.

The lure of attractive returns won’t resurface (and foster investment in new companies) unless the increase in IPO activity and M&A improves significantly over the modest improvements that we are beginning to see, though. A double dip recession – or even a lackluster recover – would throw cold water on future VC investments.

For now, money sits on the sidelines as VCs look for safe places to invest.  The ten-year performance of venture capital (the typical lifespan of a VC fund) has dropped to levels that have many questioning the future of the industry.  But short memories are common and the death of the venture capital industry is greatly exaggerated.

Astute funds with strong track records continue to look for great investment opportunities – and face far less competition as the industry has at least temporarily shrunk.  Companies with game changing technologies and realistic short time horizons to IPO or sale offer the best opportunities.  These are the “wins” VCs are looking for to turn the tide in their performance statistics and re-ignite excitement among their fund investors.