US venture capital investments sank 61 per cent in the first quarter of 2009, dropping to the lowest level in 12 years as financiers became even warier about sinking funds into startups during a deepening recession.

In yet-another indication that a pullback that began last summer is not abating, venture capital investments totalled just $3 billion during the first three months of 2009, according to a report released on Saturday by Dow Jones VentureSource, a venture between PriceWaterhouseCoopers, the National Venture Capital Association and Thomson Reuters. In the year-ago quarter, investments totaled $7.74 billion. This is the lowest quarterly level of venture investments since the first quarter of 1997, when they totalled $2.96 billion.

The report said 549 companies received investments in the first quarter, down from 997 in the same period last year. This is the smallest number of companies to receive investments since the first quarter of 1995. Only 477 venture deals were completed in the quarter, well below the 706 deals done in the first quarter last year and the industry's lowest quarterly deal total since 1996.

"We're seeing continued retrenching in the venture capital industry," said Jessica Canning, director of global research for Dow Jones VentureSource. "Over the past several quarters, VCs have pulled back significantly on early stage investments in the US, across all industries. During the economic downturn, investors will continue to focus on nurturing their strongest, existing portfolio companies, and keep their eyes open for the next set of opportunities.''

Almost every industry saw a decline in venture investments. The software industry received the most funding, with $614 million spread out among 138 companies, down almost 56 per cent by dollars and 45 per cent by deals compared with last year.

One of the few industries to report year-over-year growth was health care services, where investments edged up 6 percent to $46.7 million. Eleven companies received investments - one more than in the same quarter of 2007.

Internet-specific investments, which refers to companies whose business models are fundamentally dependent on the Web, totaled $556 million, down 58 per cent from last year. "Technology companies have long been the primary focus of venture capitalists," said Ms. Canning. "But with a non-existent IPO market and corporations paying less for venture-backed technologies, the incentive for investors to back new or unproven business models is just not there."
 
Alternative energy, pollution and recycling, power supplies and conservation - or "clean technology" - had been among the only bright spots during the last three months of 2008, when $971 million was invested in 67 companies. But in the first quarter, $154 million was invested in 33 companies in this sector. Compared with the year-ago quarter, the drop was almost 87 per cent in investments and 50 percent in the number of companies that received funds. 

The amount invested in companies seeking their first round of financing was especially low in the first quarter, as $596 million went to 132 companies, the lowest number of dollars and deals since the third quarter of 1994. This compares with the $1.7 billion spread among 324 companies a year ago. 

The top deals in the first quarter included $50 million invested in pharmaceutical company Anacor Pharmaceuticals Inc, $35 million invested in mobile payment service provider Obopay Inc and $35 million invested in short-messaging service Twitter Inc. 

The number of venture-backed companies that were acquired during the quarter fell by nearly half to 56, from 106 in the same quarter last year. There were no initial public offerings of venture-backed companies.

During a conference call, John Taylor, vice president of research for the NVCA, said venture investors are being selective right now, and ''the best ideas are getting funded but the marginal ones aren't."