The malaise continued into its second year, especially for companies seeking their first funding round, said the joint report released by Ernst & Young and VentureOne.
Technology companies received $11.7 billion in venture funding last year--down nearly half from the previous year and a 79 percent drop from the go-go period of 2000. Meanwhile, venture investments overall fell to $19.4 billion, down 44 percent from the previous year.
IT companies received 1,173 rounds of funding last year, with the median round reaching $7 million. That's down from 1,782 rounds the previous year, with a median round of $8 million.
"We knew it would be down for the year, but it's still surprising to see how far it's been down and how few early-stage companies are getting funded," said John Gabbert, vice president of worldwide research at VentureOne.
The median amount of funding for IT companies seeking their first round was $5.45 million, while companies in their second round received a median of $8 million and later-stage companies $9 million.
The information services industry was particularly hit hard. Last year, the sector raised $550 million--a sharp drop from the nearly $1.9 billion received the previous year, according to the report.
"Companies were consuming a lot of IT consulting services when their businesses were growing rapidly. But now, people aren't looking to outsource as much as they used to," Gabbert said. "As a result, there is less interest in investing in that sector."
Despite a sizable drop in IT investments in 2002, Gabbert anticipates better days in the future.
"I think we've hit a plateau," Gabbert said. "I would imagine it will rise from its current levels over the next year."