The shakeout in the venture industry is on, and it is ugly.

Many, many firms are dying -- all while the top firms are doing extremely well.

We've gone from 1000 venture firms in 2007 to less than 400 today, and more are shutting down. That's one depressing finding from a Mercury News report on the VC industry. For the first time, the overall ten-year returns of the industry are now negative, as the dotcom bubble fades.

There's been talk for many years of an impending shakeout in the VC industry, which grew too large in the dotcom days, and it is by necessity a slow one because funds are raised for 10 years (often more) and there are plenty of "zombie firms" which have long stopped investing but still manage a portfolio of some sort.

What's striking about what's happening now isn't that there's a shakeout or even how bad it is but how uneven it is. While VCs are dropping left and right, firms like Accel and Sequoia are making an absolute killing. Plenty of people anticipated the shakeout; fewer anticipated Facebook at $50 billion, Groupon at $20 billion and Zynga at $10 billion. That explains why, even though most people think the shakeout will mean smaller funds, the top performing funds are raising huge billion dollar funds ($2 billion for Accel, for example).