So what does that mean? Clearly, LPs are sending a strong message that has to do with Elevation, but also has a lot to do with the broader market: They want to see some returns before they pony up more money. But the news isn’t nearly as bad as it sounds.

For one thing, we’re only talking about $100 million or so of the $1.9 billion fund. At most, this would have represented one more deal in the portfolio. What’s more Elevation can still call up that $100 million to invest in a follow-on round in existing portfolio companies, so it’s not like the fund size has necessarily been reduced to $1.8 billion. There is just a new restriction on how they can spend that last $100 million.

What does this mean for that Pandora deal? It doesn’t kill it, because Elevation signed an agreement to invest before the original five-year investment period elapsed. But that deal isn’t done and it’s unclear if there’s a snag or the deal is just taking some time. In our earlier story, Pandora confirmed that Elevation had expressed interest and sources close to Elevation say an agreement to invest was already signed.

Either way, the fund will hinge on Elevation’s investments in Yelp and Facebook. As we reported before, if you average together Elevation’s investment in Facebook it holds its shares at a valuation of $29 per share and Facebook has been trading as high as $70 a share on the secondary market. It’s hard to imagine a scenario where Elevation loses money on this, but the concern is when and how do they cash out?

Facebook founder and CEO Mark Zuckerberg has repeatedly telegraphed that he’s in no hurry to do an IPO, and his use of late stage and secondary deals has alleviated the pressure to do one. Typically companies go public because early employees want liquidity, the company wants a hoard of cash to grow or the company wants a stock currency to do acquisitions. Facebook has checked most of those off. Early shareholders can (and many have already) exit on the secondary market or through one-time deals like the one with DST. The company has raised a whopping $836 million in capital according to CrunchBase and is reported by some to be doing revenues in the $2 billion range. And, again, thanks to the secondary market, Facebook has an externally validated price, making it easier to do any stock transactions than it would have been for a private company ten years ago. On paper, Elevation’s investment in Facebook is soaring. But LPs are going to want to see more than paper if they’re going to invest in a second fund.

That brings us to Yelp. Yelp’s ascendancy is far less of a sure thing than Facebook’s, but Elevation owns a much bigger chunk of the company. It bought shares at a price that valued Yelp at $475 million, just shy of the price it reportedly turned down from Google. Few (rational) people think Yelp will be worth nothing. The question is: Does it wind up somewhere around the price of Slide or does it become one of the few $1 billion winners of the Web 2.0 era? For Elevation to make the kind of return it’s hoping for, Yelp needs to make sure upstarts like Groupon and FourSquare don’t steal its opportunities for micro-local monetization. Personally, I’m still bullish on Yelp’s odds, and the early results of its first San Francisco deal look promising. But a sure thing it is not.

Pandora could be the last deal Elevation does in this fund, or if Yelp goes south, it could be the last deal Elevation does ever. Even though the firm can call that last $100 million for a follow-on, odds are Elevation won’t. Facebook valuations are soaring out of control on the secondary market and the company already owns one of the largest stakes in Yelp. The Palm-batross is gone, and Forbes is what it is. It’s a near-certainty no more money is going towards saving Forbes, especially given Elevation’s re-tooled team and investment approach. The firm has learned the lesson about putting too much into one company the Palm-way.

The bets have been made and Elevation’s partners will have to wait for the roulette wheel to stop spinning, doing what they can in the mean time to help make their companies stronger. I talked to one small limited partner this week who said he personally wouldn’t invest in a second fund, and another who said he loved the new team, but worried the change in strategy just came too late.

Like Yelp, I think Elevation has a decent chance of pulling the second fund off. There is clearly a market for these mega, late-stage transactions, and there aren’t a ton of Valley teams who have experience doing them and few Wall Street teams that have the contacts here. But don’t expect them to hit the fundraising trail until Yelp and Facebook exits look more certain.

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Authors: Sarah Lacy

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