updated 4/26/2005 1:05:58 PM ET 2005-04-26T17:05:58

Venture capitalists invested $4.63 billion during the first three months of 2005, an 8 percent drop from a year ago and the third consecutive quarterly decline. But analysts dismissed the recent trend as an insignificant blip, saying investors are being more judicious in the aftermath of the dot-com bust.

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The amount of venture capital funneled into 674 startups nationwide fell from $5.03 billion at the same time last year, according to figures jointly released Tuesday by the National Venture Capital Association, PricewaterhouseCoopers and Thomson Venture Economics.

The industry's investments have ranged between $4.2 billion and $6 billion for 12 consecutive quarters, suggesting venture capitalists have regained their financial discipline after bingeing on unprofitable Internet startups during the dot-com craze.

Venture capitalists invested nearly $160 billion in 1999 and 2000, an unprecedented spending spree that created a glut of poorly managed startups competing against each other for the same potential customers.

The 8 percent retreat for the three months ended March 31 compares to a 1 percent drop in the fourth quarter of 2004 and a 2 percent decline in third quarter of 2004. By contrast, venture capital investments plunged by more than 60 percent in 2001 and nearly 50 percent in 2002.

After that traumatic shakeout, "we are seeing a bit of discipline on the part of venture capitalists," said Tom Crotty, a general partner with Battery Ventures. "People are taking a lot more measured approach about how many great deals they will see in any given year."

The annual pace of venture capital investments probably should remain in the $20 billion to $23 billion range to guard against another round of irrational exuberance, said Mark Heeson, president of the National Venture Capital Association. Venture capitalists have invested between $19 billion and $22 billion annually since 2001.

With most of their headaches from dot-com bust behind them, venture capitalists are focusing more on new opportunities.

Companies receiving their initial round of venture capital accounted for $1.22 billion, or 26 percent, of the industry's first-quarter investments. That marked the industry highest level of first-time funding activity since venture capitalists committed $1.23 billion in initial financing rounds during the second quarter of 2002.

In a reversal of recent trends, venture capitalists curtailed their investments in biotechnology startups, a niche whose profit potential had begun to lure money away from the slumping high-tech sectors such as telecommunications and computer hardware.

Venture capitalists invested $631.6 million in biotech deals during the first quarter, a 31 percent decline from the same time last year.

The investing downturn reflected jitters raised by the poor performance of many biotech companies that went public last year as well as a wave of safety concerns raised about drugs developed by well-established pharmaceutical companies, said Jean George, a general partner with Advanced Technology Ventures.

The recent retrenchment in biotech investment is probably a healthy development, said Tracy Lefteroff, global managing partner of PricewaterhouseCoopers' venture capital practice. "This "takes a little air of out the notion that (venture capitalists) are overly exuberant about this sector."

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