VC firms invested only $3bn  in 549 young companies in the first quarter, the lowest investment level since 1997, according to analysis by the National Venture Capital Association and PricewaterhouseCoopers. The amount invested was down 47% from the fourth quarter of 2008 and 61% from the first quarter of the previous year.

Investment in every major technology sector had double-digit declines, but it seems investment in clean-technology start-ups, reaching record highs last year, took the heaviest battering. In the first quarter, only $154m went into 33 companies, an 84% drop from the fourth quarter, the lowest level since 2005 when clean technology began its take off.

Software companies received $614m, a drop of 42% from the fourth quarter of last year. Quadriserv, which makes market data software for securities lending, was the biggest deal recorded in the sector, raising $34m.

Internet companies raised $556m, down 31%, biggest deals being Obopay, a mobile phone payment service, and Twitter the microblog site, each raising $35m.

Biotechnology and medical device concerns raised $989m, a decline of 40%. Five of the 10 biggest quarter deals were medical companies,  biggest being  Anacor Pharmaceuticals raising $50m for inflammatory and infectious drugs.

Venture firms hurt by the economic crisis, made initial public offerings of venture-backed companies almost impossible, and acquisitions harder to come by. As a result, investors are chanelling time and money into existing portfolio companies, rather than a new generation of start-ups. Only 132 start-ups raised money for the first time, the lowest number in 15 years.

Though venture capital funds raised $4.3bn in the first quarter to invest in new companies, most are doing so slowly, waiting to see if the markets improve.

New York Times