Earlier this year I was a panelist on a panel of VCs (venture capitalists) and entrepreneurs. My recommendation was: be cautious. After all, the US is undergoing a credit crisis, and if history is an accurate guide, there could be problems with the VC industry.

Well, according a piece in Reuters, it looks like VCs are indeed getting nervous. In fact, they are urging their portfolio companies to be careful with their cash hoard.

It's certainly good advice. Based on my experience so far this year, it seems that VC rounds are getting smaller – and the investment process is getting longer. At the same time, entrepreneurs are having a hard time getting customer traction.

Something else that's troubling: the IPO market.

Basically, it's horrible. There were just five VC-backed IPOs in Q1 of this year. Unfortunately, there are few signs that things are getting better.

So, with meager public markets and slowing VC activity, companies may ultimately have no alternative but to sell out. Unfortunately, the M&A market is also tepid – at least in terms of valuations.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.