The boom in venture capital funding is over, industry experts say, and venture capitalists and investors alike are bracing for a period of painful retrenchment as numerous venture-funded companies continue to gush red ink.

"The conventional wisdom is that there will be a lot of sales and shutdowns this year as venture capitalists weed out the weaker companies from their portfolios," said Joy London, a venture capitalist with New York-based Adler and Co. "The paper value results will probably look bad this year and next year -- if next year's economy is bad, you'll see some real problems."

"There will be some venture fund failures by the end of the year," said Stanley Pratt, chairman of Venture Economics, a Massachusetts-based industry research firm.

Venture capitalists -- financiers who take equity positions in emerging growth companies and reap their return by selling or taking them public -- have been hard hit by a general slump in the personal computer, software and semiconductor industries and by too-grandiose investment expectations.

"Too many venture capitalists confused building companies with building market values," said William Hambrecht, chairman of Hambrecht & Quist, a leading San Francisco venture capital and underwriting company. "That's the 'greater fool' theory -- you start with a $1 million investment and say it's worth $5 million and take it public at $15 million . . . It's no longer a get-rich-quick marketplace . . . we're back to the 5-to-7-year investment cycle in a company."

Hambrecht and other venture capitalists blame the 1983 bull market in initial public offerings in high technology for totally distorting investor expectations. In that market, says Stanley Pratt of Venture Economics, "there were companies that were selling for 10 times sales -- not just 10 times earnings. If anybody anticipates seeing another 1983, they need to have their head examined."

Moreover, as more money poured into venture capital coffers and new funds bid to invest in young companies, the market became "less inefficient," said Pratt, which means that overall returns on venture investments are likely to drop as the bidding becomes more realistic. Pratt added that "there will be fewer exceptionally high returns in the 70 percent to 80 percent range."

"We're not going to make as much on margins over the next 10 years as we have in the last 10 years," Hambrecht said.

"Not every fund is going to make a satisfactory rate of return -- and, given the risk, you've got to do better than the Dow or the S&P 500," said one venture capitalist.

That new reality has played a significant role in a general leveling off of investment into the venture capital pool. In 1982, roughly $1.8 billion was invested in venture funds. That number jumped to $4.5 billion in 1983, the peak of the bull market. Last year, Venture Economics estimates, the investment was at $4 billion.

This year, Venture Economics anticipates a dip that could bring the new venture funding to $3.5 billion -- still sizable but definitely not on a growth track.

Most observers believe that the industry has quickly grown more mature and, much like the technology companies it funds, is undergoing a shakeout. "In the next six to 12 months," said one venture capitalist, "you will see some consolidation. I don't know how bad things are going to get before they get better."

"I don't see that $4.5 billion figure again for the duration of the decade," said Adler's London. "I think some people expected the growth to go on forever."

Venture Economic's Pratt points out that the roughly 25 percent return on investment most venture funds get should be more than satisfactory for investors. "Why have unrealistic expectations when the realistic ones are fine?"