When tech investors from around the country convened in San Francisco last week for the annual convention of the National Venture Capital Association, spirits were high. The group was celebrating its 40th anniversary, and members hailed last year's passage of the JOBS Act, which advocates say will help more companies go public by easing regulations.

But the association's latest quarterly funding roundup provides a sobering counterpoint.

In the first three months of 2013, nationwide venture funding fell 12 percent compared to the previous quarter, according to the MoneyTree report. The association and PricewaterhouseCoopers compile the data with Thomson Reuters.

That's a troubling sign, considering that 2012 was the first time since the Great Recession that venture capital investment fell year over year.

"It's the product of lousy returns over the past several years," said Jason Green, a venture investor at Emergence Capital Partners in San Mateo.

Those poor investment returns have prompted a pullback by the pension funds, college endowments and other "limited partners" that give venture firms money to pour into startups.

Eleven of the 17 industry sectors the MoneyTree report tracks saw dollars decline in the first quarter. Venture capitalists put less money into Internet companies, information technology, semiconductors, cleantech and life sciences.


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Even the bright spots had gray linings. Funding for media companies rose, but that was largely skewed by a $200 million investment round for Pinterest. And while dollars for software companies continued to flood in, the number of deals declined compared to the previous quarter.

Green, though, says there's still reason for optimism.

"It's very simple how it gets resolved, which is that we put together 10 years of good returns," he said. "We've seen these cycles before."

Green, whose investments include enterprise software makers Box, Yammer and SuccessFactors, said there's no shortage of promising entrepreneurs in which to invest, especially given the promise of mobile and cloud computing to boost innovation and productivity.

"Is it gonna be painful the next few years? Yes," Green said. "But I see all the fundamentals as being definitely up and to the right."

Contact Peter Delevett at 408-271-3638. Follow him at Twitter.com/mercwiretap.