The traditional venture capital business model of investing in start up companies fairly early, acquiring a large stake in the company for a relatively small investment and then guiding it to growth in preparation for an eventual sale of the company or IPO which will then provide the investors a hopefully sizable return on their investment, is still the primary goal and operating business model in the venture capital community. However, with the dearth of venture capital backed IPOs the past few years, VC firms have been seeking and employing alternative means of investing in an attempt to deploy the capital they manage and earn a positive return on investment for their limited partners. One avenue some VCs have followed is investing in the private shares of established non-public firms such as Facebook, Twitter, Skype, Groupon, and Zynga at relatively later stages of their development.

Andreessen Horowitz is a good example of the new age venture capitalists. A VC firm started in 2009 with a $300 million fund by Marc Andreessen, founder of Netscape, and his partner Ben Horowitz, AndreessenHorowitz set up shop on Sand Hill Road and almost immediately started purchasing shares of companies in the private markets. That same year, the firm plowed about $50 million, approximately 16% of their initial fund, into Internet-telephone service Skype, its first large-company deal, which is now paying off for them due to Microsoft’s (MSFT) $8.5 billion acquisition of Skype just announced this week. With a 3% holding in Skype, the proceeds to AndreessenHorowitz from the sale to Microsoft should total approximately $250 million, approximately five times their original investment. The VC firm has also made subsequent sizable investments in the private shares of Facebook, Groupon, Twitter, and Zynga. AndreessenHorowitz’s investment in Facebook was done at a $35 billion valuation for Facebook and the purchase of private shares of Twitter was done at a $4 billion valuation. Trading of private shares of Facebook have recently been reported at a valuation of approximately $70 billion, double the valuation at the time of AndreessenHorowitz’s transaction.

Along Sand Hill Road, where many venture firms are located, some argue that private-share deals don’t even count as venture capital. Mr. Andreessen’s detractors privately gripe about how the newbie venture capitalist is driving up the price of deals and gaining access to shares due to his extensive web of relationships. Others say Andreessen Horowitz may lose money based on the high prices it pays to acquire shares. Mr. Andreessen dismisses the idea that he overpaid in certain transactions. He believes that companies like Facebook and Groupon still have a lot of “growth runway” since they have yet to fully tap major markets like China and Brazil.

To spread their bets, Mr. Andreessen and his partners are also investing in tiny tech companies—nurturing them with development help, in the old-school VC way. At the same time, they have told investors they expect to at least triple their money in Facebook and other Web companies, even at the valuations they paid. Andreessen Horowitz last month raised an additional $200 million to continue doing big, late-stage deals.

There is a lot of recent and current M&A and IPO activity among Web based companies as evidenced by the Skype acquisition by Microsoft and the upcoming IPO of LinkedIn and an almost frenzy among those who want to “join the club”, so to speak. Many in the VC community are skeptical about the valuations being assigned to many of these companies. Of one thing we can be sure – in the end, there will be winners and there will be losers.