VC going to seed?

Several of the VCs and Private Equity groups I maintain contact with are in desperate exit mode. "Everything is for sale" I was told with the emphasis on SELL. IPOs are almost non-existent; big pharma is overpaying for compounds and companies because they have no pipeline.
Article in The Scientist titled "Biotech Faces Investment Downturn" was of interest- although investment was up in the 3rd Qtr compared to same in '07, they reported that was going to decrease significantly in the 4th and much would be placed in existing companies to keep them afloat until exits could be generated.
http://www.the-scientist.com/daily/2008/10

Maybe this will be the case- but what about the pipeline? Tech transfer and development is not stopping- the grant money was given out months ago and it ain't going back. The clock is ticking on any IP and patents- delayed investment is money lost. The time needed to move forward with clinical studies is relatively fixed or actually lengthening in hot areas such as oncology and CNS. In the past VC and PE kept stepping up the size of their investments as money poured in. VC strove to be PE and PE wanted bigger and more secure companies for investment. Why? Was it because without additional due-diligence capacity the number of deals was not increasing, just the size ? Or was the money just more risk adverse? Or was the increasing volume of preclinical development producing little of quality? ie more money chasing the same number of good candidates and therefore needing higher quality because of the increasing amounts they wish to invest?
BUT- Could we now see a return to seed and early stage funding? Will the 'Valley of Death' become more verdant ? As the existing biotechs with limited pipelines become less valuable with each passing month and the number of smaller deals available picks up, perhaps we are on the cusp of an explosion of start-ups and some real innovation.