Irish venture capital investment fell by 31 per cent in 2001, with seed capital for start-ups plummeting by 50 per cent, according to a new report by PricewaterhouseCoopers.

However, the Republic now invests more of its venture funding - 81 per cent - in technology firms than any other European nation. The European average is 37 per cent.

Only Iceland makes a similar commitment to technology companies, giving 79 per cent of its venture funds to the sector.

Finland comes in third with 51 per cent, followed by Italy with 46 per cent.

In percentage terms, Irish funding, at €145 million overall, remained above European investment levels, which fell 35 per cent over 2000 levels of €11.5 billion, to €7.4 billion.

Of the Irish amount, €126 million went to technology sector companies.

"I was a little surprised that the level of investment hadn't dropped more," said Mr Joe Tynan, venture capital sector leader at PricewaterhouseCoopers Dublin.

"In a bad year for venture capital, we put in a pretty good showing in Europe," he said.

Technology funding in the Republic went to 65 companies as 108 separate investments. The average investment was €765,000.

In Europe overall, 5,200 investments were made in technology companies with an average deal size of €1.3 million. In contrast, average deal size in the US was €10.8 million.

Funds raised by Irish venture firms rose 6 per cent over 2000 to €210 million.

But Mr Tynan said it was important to also note that the Republic saw a large fall in funds between 1999, when €319 million was raised, and 2000. Across Europe, €38.2 billion was raised in 2001.

Mr Tynan believes the Irish market has "no shortage" of investment funding as long as companies have convincing business proposals.

He noted that venture firms ACT, Delta Partners, Cross Atlantic Capital Partners and ICC all closed funds of about €100 million in 2001.

Mr Tynan said Enterprise Ireland also remained a significant investor in venture funds.

Cash from earlier funds was still waiting to be placed, he said. "There's significant additional funds raised in 1999 that are still not yet invested in 2001."

However, corporate and individual investments have fallen off significantly in the Republic.

And many start-ups will be concerned at the drop in seed funding, which is needed to help entrepreneurs get ideas off the ground.

E-commerce companies have clearly fallen from grace.

Investments in the once-hot area dropped by over half in Europe, reflecting wariness of one of the sectors hardest hit by the economic downturn and the deflation of the internet "bubble".

While €1 billion went to such companies in Europe last year, €2.4 billion was invested in the sector in 2000.

Similarly, in the Republic, e-commerce investments fell by two-thirds, from €104,000 in 2000 to only €34,000 in 2001.

The European market still looks tiny compared to the US. There, $40.6 billion (€41.47 billion) was invested in 2001, of which 78 per cent, or $31.7 billion, went to technology companies.

"We're actually much closer to the US than Europe in this area," said Mr Tynan, noting the similar focus on technology in the US and the Republic.