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Caution may be the new normal in Silicon Valley

VCs are still readjusting after the heady days of 2015.

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Venture capitalists are exercising caution with their money.

Mark Wilson, Getty Images

Caution was among Silicon Valley's biggest themes last year. And that prudence was amply reflected in the amount of money invested in startups.

The value of US venture capital deals fell to $58.6 billion in 2016, a 16 percent drop from the previous year, according to an analysis released Wednesday by CB Insights, an industry watcher, and PricewaterhouseCoopers, a professional services consultancy. The number of deals struck fell 20 percent to 4,520.

The fall in dealmaking isn't much of a surprise. Investors have indicated for a while that they're nervous about startups following a glut of investments in 2015. The level of investing wasn't sustainable, says Marcelo Ballve, a research director for CB Insights, and was based on fairly rosy growth projections.

Ballve says 2017 could prove just as uncertain because lots is up in the air. Among the question marks: the policies of a new president, who is about to be sworn in, and how the UK will leave the European Union after the Brexit vote in June. Both could have big impact on the global economy which, in turn, will affect the prospect of startups.

"'Uncertainty' is the word of the year so far," Ballve said.

The signs of a slowdown have been evident for a while.

In October, VC funding hit a 2-year low and it's not likely to bottom out anytime soon, says CB Insights, given how far the industry rose in 2015.

And the birth rate for new unicorns -- the whimsical term for companies valued at a billion dollars or more -- has remained low, with just four emerging in the last quarter of 2016. That was unchanged from the previous quarter and a big change from the fourth quarter of 2015, when VCs unleashed 12 new unicorns into the world.

The downturn wasn't only seen in the US.

Globally, deals fell 10 percent year on year and funding declined 23 percent.

The report wasn't entirely downbeat, though.

Companies working on artificial intelligence saw upticks in both funding and deals. AI investment hit $705 million, up 16 percent from 2015, while deals jumped 22 percent.