"It's always darkest just before it goes pitch-black." That's the kind of humor you'll find on Despair.com, a purveyor of antimotivational posters.

Right now, despair is what they're feeling on Sand Hill Road, the iconic road in Menlo Park, California, where the world's top venture capital firms are clustered.

VCs (short for "venture capitalists") have been swimming in gloom over the state of the IPO market. It's a very ugly time... some have even wondered aloud if the venture capital model will survive.

This is ironic, because a great IPO resurgence is ahead. It may not be "pitch-black" just yet, but it's getting very close. On the other side of this lull, there will be fireworks the likes of which we haven't seen for a decade or more.

The logic behind this way of thinking is simple. But first, let's see why the VCs are so gloomy...

Not Since 1978

There were no venture capital-backed IPOs in the second quarter of 2008. None. Zippo. Zilch. This is the first time that's happened in three decades. (The last time it happened was 1978.) Some boutique bankers predicting the worst IPO volume in 20 years this year.

In 2002 -- a very ugly year for the markets, if you'll recall -- there were only 22 venture-backed IPOs. As of the year 2008 so far, we're on pace for just 10 venture-backed IPOs... fewer than half the 2002 tally.

No wonder the NVCA (National Venture Capital Association) is wailing and tearing its hair out. Those numbers are pretty bad to be sure. There is talk of a "terrible crisis" for the U.S. economy if things don't improve.

But calling for VC doom is shortsighted. Why? Because the bread and butter of venture capital has always been technology; and right now the world needs tech like never before.

Consider the most pressing problems on the world stage. We've got the U.S. economy in the tank and the dollar going down in flames, of course... but on an even broader level there are severe crises brewing in areas like energy, water and food.

New technology, new innovation and new ideas are needed to solve these pressing problems. And that's exactly the kind of thing that venture-backed technology start-ups excel at delivering.

Solving $200 Oil

Einstein observed that you can't solve a problem with the same mentality that created it. So how does one solve a problem like $200 oil?

(We're around $150 now, but energy giant Gazprom is calling for $250 oil; OPEC officials see $170 before summer's end; and analysts at CIBC World Markets see $200 a barrel by 2010.)

When the old paradigm breaks, you have to come up with new ideas and new ways of thinking. And when it comes to a challenge as big as energy, you have to implement those ideas on a mind-boggling scale.

Ever take a cross-country road trip? Just think of what it takes to drive a car across the continental U.S.A. With the exception of true wilderness, the average road warrior is never far from a gas station, service station, tire center, or auto body shop. Just for fun, try to guess how many gas stations there are in the United States. (Rough estimate: about 200,000.)

Figuring out how to replace, modify or otherwise adjust a nation's driving habits to $200 oil will change everything. The internal combustion engine will never be the same... and whatever solutions get implemented will have to be rolled out far and wide.

It will require hundreds of billions, if not trillions, in investor capital to make this happen. And it will require not just one but many new technologies, all working in concert. Many of the breakthrough ideas that survive and thrive will be provided by venture-backed start-up firms.

The Real Game Changer

Think back, too, to the huge IPO boom that took place 10 years ago. You know, the glory days when dot-com stocks were all the rage, and funky start-ups like TheGlobe.com shot through the roof before flaming out spectacularly.

People were super excited about the Internet as a "game changer"? talk of eyeballs and bandwidth and so forth.

But here's the thing. The Internet may have been a "game changer," but it was never a lifesaver. No one was dying for lack of bandwidth. No nation was in crisis for lack of ability to comparison shop or buy a book online.

But now there really are nations in crisis. There really are people dying. Poor countries like Bangladesh are on the verge of fiscal collapse, for example, because the government is forced to spend billions on fuel subsidies. (Without those subsidies, the cost of fuel would rise high enough to cause riots, tearing the country apart.)

Meanwhile in the U.S.A., Americans are feeling pangs of fear for the first time in generations as the cost of living rises to new heights. Basic staples like eggs, milk and onions have gone through the roof. In other, less fortunate countries, the specter of flat-out starvation looms.

The world's food, energy and water problems will be solved -- to the degree they can be solved -- by changes in lifestyle habits and dramatic technology shifts. The technology will come from sharp new companies, which in turn will need massive expansion capital to make their solutions available on a global scale.

Again, in order to solve a problem, it's not enough just to build a better mousetrap. You have to have the factories and the plants and the manpower to make millions of copies of that mousetrap... All this points to an explosion of activity ahead. We need it. The world needs it. And Wall Street needs it, too.

Watch Out for Arrows

So what does this mean for you and I as investors?

It means a space that looks fairly dark here and now -- the venture-backed IPO market -- is set to shine brightly again before too long. All the wailing and moaning is a sign that "pitch-black" is almost upon us. After all, how could it not be? When it comes to food and energy in crisis, what other option does the world have beside bringing lifesaving new tech to market on a scale never before seen?

Those who get on the ball early, scout things out, and do their homework will have the potential for truly huge returns. But you'll also want to be careful. As you'll remember from the wild and crazy dot-com days, a few standouts survived while the rest crashed and burned. (Pioneers get the glory, but they also get the arrows in the back.) Boldness tempered by caution will be the order of the day.

Warm Regards,

JL

P.S. Sorting the IPO wheat from the chaff is where my old friend Cash McDash comes in. He's been plugged into the new-issues pipeline for nearly a decade.

Cash hears about virtually every deal that comes out -- the good, the bad and the ugly -- before the general press even gets wind of it. (This is because the dealmakers who make the IPO happen... underwriters at Goldman Sachs, Morgan Stanley and the like... are calling him and feeding him info.)

Cash makes it his business to not only know everything that's coming to market, but to also know how the system works. He taps his extensive information lines to determine which new issues are winners and which ones are duds. The good times aren't quite back yet, but Cash is making a killing anyway shorting the duds. Check out our new service, IPO Confidential, to find out more.