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Number of IT venture deals falls to 10-year low

Venture capitalists pull back sharply, shrinking U.S.-based tech deals to a level not seen in more than a decade, according to Dow Jones VentureSource.

Venture capitalists pulled back sharply on U.S.-based tech deals in the third quarter, pushing the flow of deals down to a level that hasn't been seen in more than a decade, according to a report released over the weekend by Dow Jones VentureSource.

During the third quarter, 270 IT-related deals were completed, a 21 percent drop compared with 342 deals in the same period a year ago, according to the Quarterly U.S. Venture Capital Report. That translated into $2.73 billion in investments, likewise down 21 percent from a year ago.

Software, which historically accounts for a large slice of all IT venture investments, fell 13 percent from a year ago to $1.15 billion. And the number of software deals declined to 125 during the third quarter, compared to 149 a year ago.

Within the information services sector, which includes a number of ad-dependent Web 2.0 companies, the level of investments and number of deals fell for the first time in three years, according to the report.

Information services start-ups raised $501 million during the third quarter--an 11 percent drop over the same time last year. A total of 64 deals were funded during the quarter, compared with 83 last year.

Start-ups that tout Internet-based consumer services also took a hit during the quarter, with funding falling 47 percent to $151 million in the quarter, compared with last year. The number of deals also dropped to 20 from 32 a year ago.

Outside of the statistics, venture capitalists and angel investors are driving the point home with their portfolio companies, issuing dire warnings to conserve capital, amid a climate where finding future pools of funding may be like searching for water in the Sahara.

The declines in the IT sector, which accounts for a sizable portion of all U.S.-based venture-backed deals, felt far more pain that the venture industry overall.

During the quarter, venture capital going to U.S.-based start-ups fell 7.2 percent to $7.37 billion in the quarter, compared with a year ago. And the number of venture deals dropped to 583 from 673 during the same time period.

"Clearly, the current economic crisis is already impacting the venture industry, which has traditionally been relatively insulated from fluctuations in the broader economy," Jessica Canning, global research director of Dow Jones Venturesource, said in a statement.