Rick wrote a story that he says shows something is wrong with Venture Capital. The more I think about this, the more the whole system needs to be changed. Here are some ideas which I think might help:
MicroVenture: Instead of trying to force innovators into the mold of a company, figure out how you can compensate them for work they've already doing, on a fair and consistent basis.
Eliminate the risk of invention: In the story Rick wrote, the hero worked for 5 years without compensation, making a huge wager. The VC essentially gets to pick which bets he thinks are best, and ante them up. If this could be done sooner, the Hero wouldn't have to be a "starving artist" and could focus on innovation, instead of survival.
MicroAngels: Find innovations in the open, and reward them, with no strings attached. Think MacArthur foundation, writ small.
MicroPatronage: Help discuss and figure out ways to make the "tip jar" model sustainable. There have to be ways other than ads to help support bloggers who add value to the community, for example. Hit counts are a terrible proxy for measure of value when it comes to blogging, for example.
Whuffie: Cory Doctorow really came up with a great concept when I wrote about Whuffie. If we came up with some system like this that really worked, outside of straight cash, it might be valuable.
Now, those ideas are all about lowering the barriers to entry, and alternative ways to add capitol to an innovation. The other side is to increase the efficiency of the existing VC system. I've never been through it, so I might be flat out wrong in my understanding of process, so please forgive me if I'm wayyyyy off.
Standardized Containers: Shipping took off like a rocket when containerization took over. It radically reduced the amount of time it took to load and unload things, and made trans-shipping economically viable. If we did an analogous thing, and built an industry standard VC company model, with standard contracts, terms, staff, and business model... it might help make things more efficient at extracting innovation from people, and into something that can be capitalized.
Open incubators: The incubator model seems to be a good one for lowering the cost of someone who wants to pursue his innovation, yet retain ownership. Perhaps even this could be open-sourced (out-sourced???), so that some members are contracted at large from the public.
I hope this helps.