Follow the money and you can often see the truth of things. This could be bad news as Silicone Valley venture capitalists are showing a lack of confidence regarding the economy.

Are we headed for a double dip recession? The numbers from the second quarter of 2010 have been iffy at best. There is even talk amongst the various Federal Reserve Branch Presidents that the big concern is now deflation, not inflation. The ultimate fear is we could drop into a decade of stagnation like we’ve seen with Japan. 

The news out of Silicone Valley would seem to reinforce this negative outlook. Venture capital was slaughtered by the Great Recession. There simply is no other way to say it. A lack of capital and confidence simply turned 2008 and 2009 into a horror show for the industry. Things have popped back up since then, but will they continue? Funding continues to be up, but an ominous cloud has appeared on the horizon.

The vibe in Silicone Valley venture capital is often measured via the Silicon Valley Venture Capitalist Confidence Index. It is a measure of the views of 32 top venture capitalists on various issues. The current results show a significant lack of confidence in the economic situation and, frankly, the future of both the economy and investing. Could the results just reflect a bad quarter and jumpy nerves? Sure, but one has to wonder. 

The best way to follow economic developments is to follow the smart money. The stock market and bank executives are not smart money. The smart money is found with the players behind the scenes. Specifically, we are talking about entities that are paying into the venture capital funds to juice the system. If VC managers are negative on the future, it is most likely because they are hearing this from their investors. 

That does not portend a positive couples of years.