Venture capitalists are taking a breather from the overheated pace of investment they set a couple of years ago.

A slowdown in venture funding that began early last year is now glaringly apparent, according to the quarterly “MoneyTree Report” to be released Wednesday by PricewaterhouseCoopers LLP and CB Insights. It wasn’t until the third quarter that signs of slowing venture investment became obvious, because the second quarter was boosted by billion-dollar-plus financings of Uber Technologies Inc. and Snap Inc. Now it’s impossible to ignore.

Venture capital investment in the United States fell 17 percent, to $11.7 billion, from the third to the fourth quarter of 2016. That’s for 982 deals, down 17 percent to a multi-year low. The fourth straight quarterly drop also marked the first time in a full five years that the deal count has dipped below 1,000. Worldwide funding also fell, to $21 billion, an 89 percent drop from a peak in the third quarter of 2015.

For all that, PwC said the drop puts the venture industry in line with 2014, a year deemed more normal than the boom year of 2015 that saw the birth of many new “unicorn” startups valued at more than $1 billion.

“It’s still a really strong year in terms of historical patterns,” Tom Ciccolella, PwC’s U.S. venture capital leader, said in an interview. The $50 billion invested globally throughout 2016 remains the fourth-highest in the 20 years of MoneyTree reports. “We’re probably getting closer to the historical norm.”

Global venture investment (Image courtesy of MoneyTree Report)

Given the steady decline in the number of deals, Ciccolella is keeping an eye on whether venture firms will further reduce investment, but he said he doesn’t see those 982 deals falling precipitously to, say, 500. “There’s still healthy interest in this asset class and in entrepreneurs,” he said.

Ciccolella also said he doesn’t see much in the way of headwinds despite an uncertain economy and an even more uncertain new presidential administration. Per the latter, he said, “I don’t really see that having an impact on what VCs or entrepreneurs do in the next 12 to 18 months.”

In fact, he thinks that initial public offerings of stock, which often spur further investment earlier in the funding chain, could be healthy this year thanks to post-election market indexes hovering near all-time highs. “There’s a fair number of companies prepping to go out,” Ciccolella said. “A fairly positive market can help IPOs.”

PwC’s confidence was echoed by one venture capitalist, though he noticed the same decline in deals and funding. Matt Murphy, managing director of Menlo Ventures, told SiliconANGLE that the fourth quarter was down up to 20 percent from the third quarter, thanks to many companies realizing investors wanted companies to show more solid products and lower cash burn than they required in 2015. “There was a lot of portfolio work by VCs to get their companies to a more rational 2017 plan,” he said, meaning lower burn rates even if that meant lower revenue growth. If a startup burned $18 million in cash to achieve growth in 2016, he said, this year it’s planning for $12 million or less.

But Murphy said that as a result, he has seen an uptick in deal activity already this year. And he thinks a number of companies, many in enterprise software and hardware, are even ready for initial public offerings of stock. “There are a ton of mature enterprise companies that are ready to go,” he said, the most in 15 years.

Still, a steady drop in pre-IPO deals and funding surely won’t be seen universally as a positive by investors. And the drop is broad-based, in every major region including Silicon Valley. It also extends across many industries. Total Internet startup funding fell 26 percent from the third quarter. Cybersecurity and automobile tech saw declines as well.

Some sectors remain fairly hot, though. Artificial intelligence deals in the U.S. rose 22 percent, with funding up 16 percent, to $705 million. Mobile and telecom rose 19 percent, though that gain was largely attributable to the $1.2 billion funding of the satellite Internet firm OneWeb.

The most active VC firms in number of deals in the U.S. were New Enterprise Associates, 500 Startups, True Ventures, General Catalyst Partners and Khosla Ventures. Globally, Intel Capital, Index Ventures, Accel Partners and Bessemer Venture Partners joined 500 Startups, NEA and General Catalyst as top investors.

Photo: daji99 via Pixabay