For many venture capitalists, 2012 is the year of reckoning.

As with other asset classes, venture fundraising has been affected by the U.S. budget crisis, the troubles in Europe and the Arab Spring. It’s an inclement investment climate for all assets, but even more so for alternatives, which tend to be longer-term and less liquid.  Many institutional investors are sitting on the sidelines, loaded with cash.

But what is hurting VC funds the most is their inability to take companies public and distribute the returns to their limited partners. Only 11 venture backed companies went public in the fourth quarter, up 120 percent from the third quarter of 2011 but down 67 percent from the fourth quarter of last year, For the full year, 52 venture-backed companies went public representing a value of $9.9 billion, a 31 percent decline in volume though a 41 percent increase in dollar value from 2010.

“Venture capital funds need to raise $20 billion or more in 2012 or face sharp contractions,” warns Mark Heesen, president of the National Venture Capital Association, in an interview. The figure represents the sum of commitments made by VC funds to support existing portfolio companies — many that haven’t been able to go public — as well as amounts to make follow-ons and new investments. For the last three years, venture capitalists have spent more money than the funds they have raised. Yet with funds raised over the last three years ($16.2 billion in 2009, $13.3 billion in 2010, and an estimated $15 billion or so in 2011) well below that level, the target cited by Heeson may prove to be elusive. The victims may be the mid-sized to large venture-backed company that have already raised multiple rounds of expensive private capital and need cheaper public capital to continue.

A recent survey by the NVCA found that 58 percent of industry respondents expect investment decreases in the biopharmaceutical and medical device sectors and 55 percent expect investment levels to decline in clean technology companies. The worst affected might be biotech and cleantech start-ups that may have raised more than $30 million to $40 million in their first round of financing. With biotech and cleantech venture funds among the worst performing funds of the last decade, many may not be around to do the follow-ons.

Many of these funds may end up part of the dreaded “zombie” fund phenomenon, according to a survey by Coller Capital, a U.K. based secondaries firm. Coller’s reports found a preponderance of funds where the general partners had no prospect of earning carried interest based on capital gains and were merely investing large amounts to prolong the fund’s life and to generate management fees.