Instead of big exits over a long period of time with big funding rounds you have shorter exits for less money with less and smaller funding rounds. I think this has already been happening.
It is nice to have big well funded unprofitable ventures out there to employ people (like ning.com) but with fewer of those around the corner the job market is probably not going to look too good.
Yes it is a lot like KB Homes trying to stay in business by building smaller houses. They are having success with that while the bigger houses just are not selling or are selling at a loss. There have been a lot of "small" exits (small as in tens of millions instead of hundreds of millions). I believe it is better to have an exit, regain all of the money you spent + take away a couple of extra million then going for broke.
Better? Sure. But I'm not sure if your example holds. I don't know the situation, but I'll guess that building smaller homes is producing a type of product that is more recession proof. Similar to producing household or business basics, or (even better) cheaper substitutes.
I'm not sure you have an equivalence here. The small startup/small exit "industry" can be thought of as producing small businesses for purchase. Therefore, it is subject to the market for small businesses. I agree that the demand in this market is somewhat independent of the demand in mega-acquisition or IPO markets, but I think it's a big statement to say it is more recession proof.
It is nice to have big well funded unprofitable ventures out there to employ people (like ning.com) but with fewer of those around the corner the job market is probably not going to look too good.