So you were ready to retire early, then your stocks went in the toilet last week. Sure, they recovered a bit this week, but the prognosis still looks bleak, doesn't it? What the heck is going on here? Frankly, it had to happen. Stock prices can be supported only so long by Internet euphoria, rather than earnings. We've seen this happen in every technical revolution from the early auto industry to plastics to PCs. Reality returns, and with it, pricing sanity. In the past, this has had mainly to do with customers and market shares. Once all the early adopters had done their early adopting, sales of mustangs and Macintoshes flattened, taking earnings with them. This Internet age is even worse in that respect, since there are customers aplenty, but the revenue is phantom while the competition is very real. This situation is rife for a shakeout.

I predicted it in this column months ago, a fallback in the consumer Internet companies and a scramble to turn those companies into steadier business-to-business plays. And it affects more than just public companies. SuperVC Don Valentine of Sequoia Capital has predicted 10,000 Internet startups will die, too, this spring as they run out of money.

Is this the end of the game? And if it is the end, how will that end be played out?

No, it is not the end of the game. Any of us can look in our hearts for the answer to the question, "Is the Internet really the Next Big Thing?" and know that it still is. Nothing is going to stop the Internet from changing in a hundred ways how we live and work and how our businesses run. This is just a hiccup along the way. It might be a $1 trillion hiccup, but a hiccup nonetheless. Eventually, the market will turn around as it always does.

But what happens to our investments in the meantime? How low can this thing go? Well, substantially lower than where it is right now. There was a lot of BS in some of those stock prices. One way of showing this could be found in last week's column, where we used the stock of 3Com to track the real value of 3Com's Palm Computing spinoff, which went public in March. 3Com owns 95.9 percent of Palm, yet for some reason the market had been valuing Palm — a company with a tenth of 3Com's sales — at substantially more than its parent company. I mean billions and billions more. Mathematically, this makes no sense at all, since the value of 3Com's own Palm shares should have been reflected in 3Com's share price. The fact that it wasn't so reflected is because the Palm stock price was crazy. Standing by itself on the NASDAQ, Palm may have looked like it was worth $38 per share, but measured through its impact on the value of 3Com shares, Palm looked like it was worth more nearly $10. So that's how far this market could drop, about 75 percent to find real values. Uh-oh.

I don't believe it will go that low. Remember, there's the Next Big Thing effect, which is very real. But there are also a couple of additional mitigating effects that may be unique to this current market situation. These are the influence of venture capital and the technical labor shortage.

Whether the NASDAQ goes up or down, the venture capital industry is poised to shove another $20 billion or so into startups this year. Having raised their funds, the VCs really don't have much choice in this matter. They have to invest the money. So no matter what the market does, there will continue to be new companies, new technologies, and new ideas. This alone will mitigate the market drop. It won't stop those 10,000 startups mentioned by Don Valentine from dying, but most of those would have died anyway. Death is part of evolution in the industry. It always has been. And because venture capital is a separate industry in its own right, an industry that is enjoying its own boom cycle on a slightly different timetable than the NASDAQ, this year's funds are even bigger than last year's. Divided by roughly the same number of venture partners as always, that means size of the average VC investment will be going up, pushing even more money into each startup.

And what will the startups do with all those venture dollars? They will mainly hire technical workers, which are in very short supply. The nerd labor shortage is the greatest challenge facing high tech. Fortunately, Don Valentine's 10,000 failed companies will provide some labor liquidity, not that we'll notice. So hardly anybody will lose their job - at least for more than a few days — because of these stock drops.

Stocks may fall, but employment levels won't. And since real estate values are more dependent on employment levels than stock performance, we are likely to see little negative impact on housing markets in places like Silicon Valley and New York's Silicon Alley.

But it goes even further than that. Labor and even office space shortages in places like San Francisco make faltering or failing companies attractive acquisition candidates. Few of the public companies that falter will actually go out of business. They will be acquired by other companies, either for their people, their technology, or even for their office view. If the IPO market falters, it may become popular for startups to back into public ownership (and founder liquidity) through acquisition. Companies that have a lot of cash like Microsoft, Intel, and Cisco will use this downturn to do some serious buying, shoring-up their people and products for the next round of fighting.

From an investment standpoint, this presents interesting opportunities. Suddenly it makes more sense to buy stock in heavily-discounted weaker companies in the certainty that they will be acquired. Any way you look at it, this downturn is an opportunity to buy.

Now if only I had some money.