One problem with this is that most companies that are small today hope to be large tomorrow. "Small" is not an intrinsic characteristic of most companies (at least most companies that would have patents), so there is little incentive for them to band together based on that characteristic.
I know of several small companies that manufacture small devices/goods that no longer patent anything at all because the patent itself becomes a high speed copy process for competitors to steal the idea and make their own copy. Not having the large bank accounts or the lawyers needed to fight these types of thefts they have decided to spend the money to continue to evolve the product(s) faster than the competition reverse engineer them and put them in to production themselves.
You are right that there's a tradeoff. I'd say the tradeoff is not so bad if at least they get to be large before being sued out of existence.
A way to address some of the problems that would arise for the protection of IP (what happens if google starts tomorrow the service disregarding the non enforceable patents?) would be to not commit to the patent fund patents that are both highly innovative and/or key to the business model, while committing the rest.
Anyway what I wanted was to start a discussion on it not detail all the possibilities of a rather complex topic in a small HN comment ;)
