NEW YORK (CNN/Money) - A research report to be released this week confirms what you probably already suspected: Venture capital spending levels have fallen dramatically. It may also lay to rest any lingering doubts within the VC community that their industry's performance is closely tied to Wall Street's performance.

The survey, put out collectively by PricewaterhouseCoopers, Thomson Venture Economics, the National Venture Capital Association, and Money Tree, reports total venture investment for the first quarter of 2002. Much as in the stock market at large, the results aren't pretty.

Total investments for the quarter stood at $6.2 billion, a decrease of 24 percent from the previous quarter. Only 787 companies received funding this quarter, down from 994 in the fourth quarter of 2001, a 21 percent decrease. The sector that experienced the biggest investment decline? IT services, which fell 45 percent to $235 million for the quarter. IT funding levels are now on a par with those of 1998, the year before the Internet bubble began to inflate.

The investment decline follows two quarters during which the numbers held pretty firm, sparking hope among VCs that despite the market's doldrums and its aversion to IPO "liquidity events," the industry could nonetheless rebound. "People were hoping that the decline was over," says Kirk Walden, national director of venture capital research at PricewaterhouseCoopers. "But as we look at the first quarter, we can say unequivocally that the decline is not over and could decline further."

"Overall, the venture capital community is not impervious to the public market, as much as we might think it is," Walden adds. "No one expects there to be a direct link, but because of the continued weakness of the public market -- and the IPO market in particular -- it's not likely that we'll see VCs rebound until the markets bounce back. A year ago I wouldn't have said that."

What a difference a year makes. With the continued funk on Wall Street, venture capitalists are finding that reaching payday is a longer and tougher road than it was during the late 1990s. Many firms are now performing triage on their investments, dividing them into three categories: companies that they'll back as the solo investor; companies in which they'll invest a small amount, but not as the lone backing firm; and companies that they simply plan to drop altogether. "Something's got to give," says Walden.

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Fortunately, there were a few happier nuggets in the report. VC investment in first-time financing, as a percentage of total investing, didn't decline during the quarter. Warren Packard, a managing director at Draper Fisher Jurvetson -- whose investments include GoTo.com (now Overture) and Hotmail (now owned by Microsoft (MSFT: down $0.67 to $50.24, Research, Estimates)) -- isn't surprised. Packard says that for early-stage investors like those at his firm, things are still moving along swimmingly -- if at a more levelheaded pace. "If you're a mezzanine or later-stage investor, you're more exposed to the whims of the public market," he says. "We're an early-stage firm, so our exit opportunities normally occur in the five- to seven-year time frame," well beyond cyclical market downturns.

Venture firms and their portfolio companies aren't the only ones suffering right now. Entire sections of the country that built up infrastructure in hopes of becoming the next Silicon Valley now find themselves in the lurch. Silicon Valley is actually doing well, despite the downturn, attracting $2.1 billion in venture capital last quarter, or 34 percent of the total. But the southeastern United States hasn't fared as well. According to the PricewaterhouseCoopers study, the Southeast received 11.3 percent of all venture funding in 2000, but in 2001 the percentage dropped to 6.1 percent. Walden believes the regions that will continue to suffer are those that failed to reach critical mass during the heady days and remain unable to firmly establish their reputations as centers for technological innovation and entrepreneurship.

Of course, it's important to keep things in perspective during tough times. Even though 2001 was an abysmal year for the markets and venture capital, the $40.6 billion invested that year still stands as the third-highest amount on record. "We're playing with a much bigger deck," says Walden.

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