The problem isn’t entrepreneurs, says Mr. Mundkur, it’s the venture capitalists who are funding them, which has led to a distortion of the way our society allocates capital.

— Christopher Mims – “Is Silicon Valley Funding the Wrong Stuff?” (WSJ link, subscription may be required.)

Yatin Mundkur is proof that not all VCs are brainless. It’s a chicken and egg problem: tech companies are getting huge valuations, and huge buyouts. Venture capital funds get returns, and attract investors who want big gains, so the money goes into whatever looks like the safest bet for a big return. As long as Google, Facebook, et al., keep snapping up companies for stupid high valuations, the more returns the venture capital funds get, and the more investors allocate.

The result? Inflated valuations for companies doing extremely dumb consumer stuff with hockey stick growth in eyeballs, and luxury services for the technological elite. Meanwhile interesting, important, and longer-term stuff sits and struggles to attract money and attention. Venture capital should be picking up the slack where federal science funding is being cut and solving real problems. Instead, we have the current situation.

Yatin Mundkur may not know if there’s a bubble, but the pattern sure looks that way to my untrained eye. I do know that the end result won’t be pretty for a lot of endowments, foundations, and pension funds.