Michael Kwatinetz was beaming Monday night as he toasted a small crowd at the Kokkari greek restaurant in San Francisco. The general partner of Azure Capital Partners was presiding over the company’s annual dinner with its portfolio CEOs and the press. And it so happened that today, the company scored the biggest venture-backed exit for a technology company this year.

There was plenty of wine, lamb chops, and flaky spanakopita. As dark days approach for the economy and exits of any kind, we’ll see if dinners like these become a scarce commodity. It wasn’t quite a bonfire of the vanities. But maybe in the years ahead, I’ll kick myself for not taking a picture.

As reported earlier, eBay bought Bill Me Later for $945 million in cash and other considerations. Azure was the biggest shareholder and it had invested in the company seven years ago, in the wreckage of post-9/11 Silicon Valley.

Azure led a recapitalization of Bill Me Later, buying out earlier investors who were disillusioned with e-commerce after the dotcom collapse. The company’s investment paid off with a decent return. Full told, the company raised about $200 million and it sold for a valuation of 6.5 times 2009 revenues.

Now it’s standard operating procedure for VCs to expect a return after seven years, not 18 months, said Cameron Lester, a partner at Azure. It’s a time of fear again. Lester said there is a huge amount of uncertainty and it isn’t clear if we’ll see things start to clear in a couple of years.

But it’s a great time to be a venture capitalist, picking through deals and finding reasonable valuations. Spin-outs and recapitalizations are bound to become more popular. The folks at Cooking.com, one of Azure’s companies, saw a silver lining in the economic mess. They said that the company’s breakfast-related products are becoming more popular as people prepare more elaborate meals at home. The population is starting to “cocoon” again, just as it went indoors and battened down the hatches after 9/11.

Maybe these guys were lucky. But Kwatinetz said his company invests with a strategy. Bill Me Later set itself apart by looking at the web as a platform. They could integrate a bunch of consumer services on top of the platform and deliver something novel: instant identification and purchase approvals for e-commerce customers. It could be an “arms dealer” that sold this service to a wide array of web sites, Kwatinetz said.

Another arms dealer in the crowd was EZ Rez, which helps the airlines out by creating the package deals that upsell ticket purchasers to hotels, tours, rental cars and other deals. Cooking.com created an e-commerce engine for cooking sites and it powers other sites such as BettyCrocker.com. Azure Capital backed EZ Rez because it had the potential to make many sites more successful.

Azure also deliberately looked for sites that would make use of the growing mass market adoption of the broadband Internet. Kwatinetz said it only made sense for the general-purpose sites such as Yahoo to be replaced by growing traffic at specific, long-tail sites where the masses of Internet visitors could generate some serious traffic. That was why Azure invested in vertical sites such as Education.com.

But those sites also have the potential to generate some serious revenue because they have ways of monetizing their traffic. Unlike YouTube, which is still struggling to make money, the topic-specific sites can generate some serious revenue. Education.com has five million hits a month and a million unique visitors. Big brands like to advertise on such sites, with expert curation by education pros. The education site has more than 450 partners who want to associate with it because it appeals to parents. So Kwatinetz believes.

“If you were Procter & Gamble, would you want to advertise on a site with user-generated content, where you have no idea what your brand will be paired with?” Kwatinetz said.

And Kwatinetz also said there was a strategy in putting money into destination sites such as TravelMuse, which debuted at the recent DEMOfall 08 conference and is not just another travel site. TravelMuse has a feature dubbed Inspiration Finder, which you can use to plan a vacation and then share it with family. You can take into account every family member’s tastes and then schedule it so everything fits.

It was one of those dinners where doom and gloom didn’t dominate the conversation. The question of the day is what strategy will succeed now. Will one of these new companies be a billion dollar exit, maybe seven years from now? Or are the days of wine and lamb chops numbered?