photo credit: esteban

In an ominous sign for Silicon Valley’s entrepreneurial machine, venture capital firms are cutting back on their investments in companies at their earliest stage of development and being forced to provide extra financing for later-stage companies that can’t leave the nest and go public.

Overall, venture capital investment remained flat at about $7.4 billion in the second quarter, according to a report released Saturday by the National Venture Capital Association and PricewaterhouseCoopers. But the amount of money invested in companies seeking their first round of venture investment fell 12 percent to $1.6 billion, down from $1.8 billion in the first quarter. Also, first-round financings fell to just 21 percent of all venture funding — the lowest percentage since the fourth quarter 2004.

Mark Heesen, president of the N.V.C.A., suggested that the drop reflected caution by funders who are worried about their inability to cash out of their investments through initial public offerings of stock.

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