Venture capital investment raised by private Irish technology firms slumped to just €252.8 million this year, significantly below the €515.8 million raised in 2001.

The number of funding deals in 2002 fell to 63, compared with the 100 deals agreed in the previous year. However, the outlook for 2003 will be slightly better, a new survey completed by corporate finance firm Ion Equity shows.

The TechPulse survey found the level of investment dropped off in the last quarter of 2002 when just €34.7 million was raised by companies. During this quarter in 2001 just 21 deals were completed with investment totalling €131.8 million.

The survey concludes some of this fall-off can be attributed to the cyclical nature of investment pipelines coupled with the fact that investments are taking much longer to complete. But it also concludes that although the numbers appear to paint a very negative view of the market generally, there has been a steady increase in quality investment by international venture capitalists.

It is perhaps not absolutely useful to compare the "irrational exuberance" of investment activity for 1999-2001 with the sober climate of 2002, concludes Ion Equity, which last year advised on several large deals.

Two big international venture capitalists, Advent Ventures and Fidelity Ventures, made their first investments in the Republic in 2002. Several strategic venture capitalists, including Orange Ventures, Siemens Ventures and Viventures, have also made their first ever Irish investments this year.

The report also found there was considerable success in attracting investment to regional locations with firms such as LeT Systems in Dungarvan and Am-Beo in Galway attracting funding. Indigenous venture capital - including Enterprise Ireland - has also been active during 2002, participating in 84 per cent of all funding deals.

Software remained the sector attracting the most international investment in 2002, and communications software and enterprise software proved two key sectors.

The survey said the funding climate in 2003 would be similar to this year. However, investment in the regions should improve even further in 2003 as Enterprise Ireland's latest initiatives over the past year come into play. The agency has part-funded a number of specific regional funds in order to stimulate activity in this area.

Software firms are expected to continue to dominate investment in 2003, and semiconductor and communications hardware should attract investment.