Oct. 26, 2004--Venture capital investment in the typically slow third quarter dropped slightly compared to a year ago, according to a new report.

The third quarter produced 467 venture capital deals in the U.S. with a net investment value of $4.56 billion, according to the Quarterly Venture Capital Report released Monday by Ernst & Young, a financial services consulting company, and VentureOne, a venture capital research firm. Both the quantity of deals and the total amount invested slipped 4% from 2003.

The report stated that seed and first-round deals constituted 32% of all venture capital deals this quarter, compared to only 28% a year ago, while the $965.8 million invested in those deals represented an increase of nearly one-third over the amount invested a year ago.

"Typically these early stage companies represent small businesses," said Matt Garlick, a research analyst at VentureOne, "so I think the growth there is a healthy sign."

The biopharmaceutical segment of the healthcare industry reported 61 deals totaling $966.9 million, up 25% in quantity and 16% in value compared with last quarter. For the venture-capital market as a whole, health-care deals made up 25% of the quarterly deal-flow, the industry's highest percentage this year. Health care also received 32% of the total venture capital amount invested.

"Should we continue to see a strong demand in the IPO and mergers and acquisitions areas, I would expect to see continued strong performances from the biopharmaceutical field," Garlick said.

The median amount invested in early-stage information-technology companies rose to $5.7 million in first-round deals, the highest first-round median since the fourth quarter of 2002. Overall, investment in information-technology companies declined slightly but still represented the lion's share of venture capital activity, with 272 deals and $2.5 billion invested this quarter.

The report is based on surveys of professional venture capital firms as well as interviews with company financial officers and data from other sources.