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Venture investing tops $7 billion in third quarter

But will financial market woes clog up the spigot? For the moment, at least, the software and clean-tech sectors have done all right for themselves.

The final days of the third quarter may have marked the start of the freefalling economy, but the third quarter as a whole was a healthy one for venture capital investments.

For the July-to-September period, just over 900 deals added up to $7.1 billion of activity by venture capitalists, totals that are within historic norms for venture capital investing. That's the good word from the MoneyTree Report issued Saturday morning by PricewaterhouseCoopers and the National Venture Capital Association.

But there were cautionary words as well.

"While overall venture investing hasn't yet been impacted by the turmoil in the financial markets, as evidenced by the $7 billion plus invested in Q3, we do expect to see a dip in investing over the next several quarters," Tracy T. Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers, said in a statement.

The dollar figures for the third quarter were down about 7 percent sequentially from the second quarter ($7.7 billion in 1,033 deals). That works out, though, to a rise of about 5 percent in the average value of a deal, to $7.8 million.

First-time deals tallied $1.5 billion in the third quarter, a 12 percent drop from the preceding period, and the number of first-time deals fell 20 percent to 259, down from 322. The average value of the first-time deals rose to $5.7 million (up from $5.2 million in the second quarter).

The software sector was right at the top of the heap in the third quarter, with 214 companies receiving venture funding, nearly twice as many as second-place biotech (114). But biotech's $1.35 billion in third-quarter investments pushed it just ahead of software, with $1.34 billion.

There was a big decline in the third quarter for Internet-specific companies, which bagged $1.1 billion in 194 deals (down from $1.6 billion going into 251 deals for the second quarter). The second quarter, however, had marked a seven-year high, and the third quarter still managed to be the ninth consecutive period with more than $1 billion going to Internet-specific companies (those whose business model that is fundamentally dependent on the Internet, regardless of the company's primary industry category).

The clean-tech sector saw venture investments rise 14 percent from the second quarter to the third, as $1.0 billion flowed through 73 deals (up from $887 million in 68 deals). This was the second time the clean-tech sector logged $1 billion or more. For the MoneyTree Report, companies in this sector are involved in alternative energy, pollution and recycling, power supplies and conservation.

Also, the top two deals overall for the quarter, and four of the top 10, were in the clean-tech realm.

"During the next year, venture capital investment levels will be driven significantly by the clean-tech sector, which will continue to grow despite economic woes and could become the top investment sector for the venture capital industry by 2012," Mark Heesen, president of the National Venture Capital Association, said in a statement.