Even in the depths of a recession, venture capitalists are relentlessly upbeat, but one of their big customers poured cold water on that Thursday, asking some members gathered in Boston for the annual meeting of the National Venture Capital Association to go out of business.

“I hope some of you go out of business. I hope that does happen,” Rebecca Connolly, a partner in Fairview Capital, said on a panel. Her West Hartford, Connecticut, firm has about $3 billion under management, 70 percent of it in venture capital funds and the rest with private equity.  Fairview, a fund of funds, manages money for pension funds and endowments

Connolly said that until 2000, venture capital provided good returns but since the dotcom bubble burst in 2001 returns have been very disappointing, hardly justifying the investment. Venture capitalists are supposed to find small companies with big potential and help them grow into big companies, like Microsoft, Starbucks or Intel.

“Let’s just flush everything out and get back to less competition, less money,” Connolly said, adding a caveat: “Just not my funds.”

The venture capitalists meeting here have been pondering what to do to start making more money again. They discussed ways to get initial public stock offerings going again, which are a good source of high returns.

When venture capital firms disappear they don’t die with a bang, or even a whimper. Instead, they just fade away, as partners are unable to raise new rounds of funding for investment. One senior official of the NVCA, asked about Connolly’s comments and whether lots of funds were starting to disappear, had a succinct answer: “I don’t want to talk about it.”

Photo: Fairview Capital

Under the bondholders’ deal, they would swap a 51-percent stake in a restructured company for $27 billion in debt, a person with knowledge of the plan tells Reuters Detroit Bureau Chief Kevin Krolicki. The deal would give the United Auto Workers union 41-percent in a new General Motors while the U.S. government would not receive an equity stake, according to the person who asked not to be named because the offer had not yet been submitted.

A committee representing GM bondholders will present the alternative plan to the White House task force overseeing the restructuring of GM and Chrysler later today, the person said. GM said this week it was moving ahead with a plan to offer existing bondholders a 10-percent ownership of the restructured automaker. Under the GM plan, the US government would own a combined 89-percent of the new company.

GM Chief Executive Fritz Henderson said on Monday the automaker would file for bankruptcy if bondholders did not swap out of 90-percent of the $27 billion they are owed.

Deals of the day:

* There is “reasonable optimism” that a deal between Fiat and Chrysler could be announced on Thursday, Italy’s industry minister said after talking to Fiat’s top management.

* Korea Development Bank (KDB) is considering raising its stake in GM Daewoo, the South Korean unit of cash-strapped General Motors Corp, officials at the state-run bank said.

* U.S. investor J.C. Flowers is heading for a showdown with the German government by refusing to accept its tender offer for stricken Hypo Real Estate.

* Russian fixed-line operator Comstar has offered to acquire telecom company Synterra for $850 million in equity and cash, including debt, business daily Kommersant reported.

* Credit Suisse will sell a 30 percent stake in an asset management joint venture formed with Woori Finance Holdings back to the South Korean firm, both companies said.

* Anheuser-Busch InBev said it completed the sale of its minority stake in Tsingtao to ASAHI for $667 million.

* Deutsche Telekom plans to combine its German fixed-line and wireless units into a single division to help save costs, it said.

(PHOTO: A General Motors Pontiac sign is seen at an auto dealership in Dearborn, Michigan April 24, 2009. REUTERS/Rebecca Cook)

Talk about trying to get a piece of an emerging market.

Nasdaq OMX said on Tuesday that its trading and clearing system was used in the launch last week of electronic trading on the Iraq Stock Exchange, or ISX, as it is known.

It is not the first time U.S. exchanges have partnered with counterparts in the Middle East. Nasdaq operates Nasdaq Dubai, and last year, the New York Stock Exchange bought a 25 percent stake in Doha Securities Market. But it may well be the first time an exchange struck a deal in a war torn country, another sign that Iraq may slowly be returning to a semblance of normalcy.

With 3,800 listed stocks, Nasdaq is well positioned to help out ISX, an embryonic exchange started in 2004 that lists only 91 stocks. About half of those are finance-related companies, such as Bank of Baghdad and Babylon Bank, while others include hotels and agricultural companies. Please click here to see the list.

Only five stocks are available for electronic trading for now, but a start is a start, and other stocks will follow in the coming months, ISX and Nasdaq said.

Investment bank Jefferies recently released a report on technology M&A in the first quarter of 2009. As one can imagine, there are few surprises. We may as well give you the highlights here, which point to some signs of recovery compared to the end of last year, but clearly there’s still a long way to go:

• The number of tech deals in North America fell 4 percent to 373 in the first quarter from the fourth quarter of 2008. It’s the lowest level of activity in five years, but at least the drop is a manageable 4 percent — in the December quarter, the number of deals dropped 23 percent from the third quarter of 2008.
• The aggregate value of North American M&A transactions was $4.3 billion in the first quarter, also a 4 percent drop from the prior quarter and an 85 percent plunge from the first quarter of 2008.
• Not a single tech IPO priced in the U.S. market during the quarter.
• The biggest tech deal announced in the quarter was Autonomy’s purchase of Interwoven for $764 million.
• The first quarter of 2009 has only three transactions greater than $500 million, compared to 10 such deals in the year-ago quarter.

The Jefferies survey also looks at tech M&A in Western Europe, which presents a similarly gloomy picture. Nine of the top 10 Western European deals in the first quarter were cross-border, and four of them involved U.S. buyers. The aggregate deal value fell 80 percent to $1.8 billion compared to the fourth quarter of 2008.

But it’s interesting to note that the mix of deals in the software, services and media sub-sector hasn’t changed much quarter to quarter. For example, IT services deals have hovered at about 30 percent of total transactions for the past five quarters, while digital media M&A has ranged from 32 percent to 35 percent of total deals in the same period.

Based on the grim experience of the first quarter of this year, Jefferies predicts there will be fewer than 1,500 deals this year in North America, a decline of 22 percent from 2008, which saw 1,919 deals. In terms of aggregate value, the bank expects only $17.2 billion, a 79 percent drop from last year, and nowhere near 2007, when the total deals announced were collectively worth $191 billion.

(Chart: Jefferies)

Chrysler’s biggest lenders and the U.S. government reached a breakthrough framework deal to cut the automaker’s debt by $6.9 billion, but officials say bankruptcy is still a strong possibility with the Obama administration’s Thursday deadline for a comprehensive rescue plan just hours away.

Fiat Chief Executive Sergio Marchionne was quoted by the president of the Canadian Auto Workers union as saying Chrysler would likely enter Chapter 11 bankruptcy for a period of time. But Michigan Senator Carl Levin said, “If they do go into bankruptcy, it would really be in and out.” A source with senior-level knowledge of the restructuring told us that a surgical bankruptcy could be a way, for instance, to address “recalcitrant” lenders.

With Germany’s Daimler AG dumping its 19.9 percent stake in Chrysler and Italy’s Fiat poised to “eventually” own more than a third of the company, European know-how and innovation have never been more important for the U.S. auto industry.

Deals of the Day:

* British education and training company BPP Holdings said it had received a preliminary approach from Apollo Global at 620 pence per share in cash. The approach was at a 70 percent premium to BPP’s closing price on Tuesday valued BPP at 303.5 million pounds ($447 million).

* Australian iron ore miner Fortescue Metals has completed approvals for its equity tie-up with China’s Hunan Valin Iron and Steel Group, the company said.

* Russia’s Aeroflot may agree to buy 49 percent of troubled German airline Blue Wings, Russian Transport Minister Igor Levitin, who is also Aeroflot’s chairman, told Reuters.

* A merger between Shinsei Bank and Aozora Bank is facing difficulties as they were not able to get consent from their major shareholders, Jiji news agency reported. 

(PHOTO: A Chrysler logo is seen atop a New York City car dealership April 27, 2009. REUTERS/Mike Segar)