SAN FRANCISCO (MarketWatch) -- Venture capitalists scaled back their deal-making activity in the first quarter, pushing investments down more than 8% from the previous period to their lowest level in more than a year.

According to the quarterly Money Tree report released over the weekend, venture capital investing totaled about $7.1 billion in the first quarter. This is a decline from both the $7.8 billion raised in the fourth quarter and the $7.5 billion raised in the same period last year.

The decline in VC investing comes against a backdrop of continuing signs of an economic slowdown brought on by the global credit crunch and woes in the subprime mortgage market.

The slowdown has all but shut down the market for initial public offerings as well as mergers and acquisitions, the two most common avenues used by VC firms to cash in on their investments.

In a conference call, venture capital experts attempted to put a positive spin on the data, noting that investment activity still remains relatively high compared to the drop-off that occurred following the last economic slowdown in 2001.

"We see from an early stage investing point of view, the economic slowdown has had an impact and perhaps people are being mindful of the economic slowdown," Nina Saberi, managing general partner of Castile Ventures said on the call. "But, at the same time, the effects of it are milder than you might imagine from listening to the evening news."

John Taylor, vice president of research for the National Venture Capital Association, said VCs remain interested in new projects "albeit with a sense of caution."

Early-stage decline

As in previous slowdowns, venture capitalists seem to prefer companies were they already have established relationships -- or made previous investments.

Companies that have not received venture capital funding in the past saw a decline in activity during the first quarter. First-stage financings totaled $1.64 billion during the quarter, down 27% from the $2.24 billion in first-time deals in the fourth quarter and down 4% from the $1.7 billion in first time deals for the first quarter of last year.

"In the case of 2008 first quarter, 294 business plans were accepted and those companies were given funding for the first time so the industry is still taking on new projects and it's consistent with what we've done in recent quarters," Taylor of the NVCA said.

Early-stage investments totaled $1.66 billion for the first quarter, down 17% from the fourth quarter. Early-stage investing activity accounted for 23% of all VC activity for the recent period compared to 26% in the previous period.

Mixed bag for clean tech

The biotechnology and software sectors accounted for the largest share of venture capital dollars in the first quarter.

Biotechnology firms raised $1.27 billion in funding during the period -- largely flat with the sector's performance during the previous period. Software firms raised $1.26 billion during the quarter compared t0 $1.39 billion in the previous quarter.

The report noted that investments in the clean-tech area, which includes several of the formal industry sectors -- also saw a decline in the first quarter.

Clean-tech investments totaled $625 million for the first quarter, down 6% from the fourth quarter.

However, clean tech also accounted for some of the largest deals in the quarter. Range Fuels Inc., an ethanol production firm in Broomfield, Colo., raised more than $130 million in financing during the quarter, making it the largest VC deal for the period.

Suniva Inc., a maker of solar-cell technology from Atlanta, raised $50 million during the quarter. Another solar-power firm, Infinia Corp. of Kennewick, Wash., raised nearly $50 million during the period.