Not broken, just needs to constantly adapt and change just like the start-ups and entrepreneurs they invest in.
Just as in any of the areas of finance, over time there are winners and losers for their return. At the end of the day, it all comes down to all kinds of market forces, the economy, and what their LPs want.
Venture investing is a high risk and potentially high reward model. There will continue to be changes necessary and challenges due to market forces (crowdfunding, online forums like AngelList, allowance of general advertising for certain fund raising under Reg D, etc.).
At the end of the day, venture capital is a useful tool and is a necessary for the type of high risk investing used to start cutting edge new companies.
More on my take on the use and necessity at "Why Venture Capital is not Vulture Capital."
There is this feeling among many founders and entrepreneurs that venture capital is the “dark side” and inherently evil. I have been very surprised to hear things like “we don’t want to go down the road with Vulture Capital” in the heart of venture capital in places like San Jose, Menlo Park, Mountain View, San Francisco, and Palo Alto. While I do agree that there are some bad apples, negative aspects of VCs and VC funding, and a general perception of VCs as sharks, I would argue that VCs are an invaluable part of the US economy and the use of VC funding has been extremely useful in the growth of many successful US companies.
Part of the problem is that people don’t understand exactly what VCs do and how VC works. The public only hears about a VC firm making billions off of an IPO and how VCs are like vultures that swoop in and take over the company and get rid of all existing employees. You can read my take on issues of company founders having a hard time giving up control here, but giving up some control is required in many situations to bring in the capital to make the company grow. Investors put money into a company to make money, not to make the world a better place. That is business 101.