Venture investment in U.S.-based companies rose modestly in 2007 to $29.9 billion, according to industry data.

This was an 8% increase over 2006, but the number of deals rose only 1%, to 2,648, according to VentureSource, a research unit of Dow Jones & Co, publisher of VentureWire. The number of deals has grown gradually since 2003 after plummeting from a peak in 2000.

The data reflect a steadiness in the venture industry where fund raising and investment totals were closely aligned. U.S. venture firms raised $32.2 billion in 2007, according to the Private Equity Analyst, a sister publication. Some of that capital will be invested overseas.

The fourth quarter of 2007 was stronger than the prior year's with 650 deals versus 615. Total investment was $7.3 billion compared with $6.4 billion in the fourth quarter of 2006.

Looking ahead, however, venture investors are worried about the effect of the sagging economy on their companies.

"My sense is that this will be a pretty challenging year," said Michael Greeley, a general partner at IDG Ventures Boston. He said year-end discussions on portfolio company boards have centered on spending more prudently and raising slightly larger rounds "to give people an extra quarter or two of runway."

"We have to be doing worst-case planning in our companies or we'd be crazy," said Kate Mitchell, a managing director at Scale Venture Partners. But she expects to see plenty of investment opportunities in 2008. "I think it's going to be consistent," she said. "I also don't think it's out of control."

Health care saw a robust increase with a total investment of nearly $10 billion, a 17% increase over 2006. There were 671 deals, up 1% from 2006. Health care now accounts of one third of U.S. venture funding.

The sector's largest component, biopharmaceuticals registered a jump in deals and dollars invested. There were 327 deals, 11% more than in 2006, for a total of $5.4 billion, a 12% hike. Also notable in health care was a 37% increase in medical devices and equipment, to $3.7 billion.

While most signs point to another strong year for health care ahead, the election is a wild card. Investors worry that a new administration would try to rein in health care spending. There's also concern about the time it takes to get a drug or medical device approved by the FDA and reimbursed by Medicare.

"We're coming up on an election, that's the only thing that could throw it [health care investing] into overdrive or throw it off track," said Terry McGuire, a managing general partner of Polaris Venture Partners.

Investment in information technology rose 2% to $14.8 billion while the number of deals stayed essentially flat at 1,530. Software deals fell 14% to 624 and the amount invested fell 8% to $5.5 billion. Information services, a bright spot in the IT sector, recorded a 44% increase to $3.7 billion. There were 479 deals, a 31% increase.

The largest deal of 2007 was an IT one -- Microsoft Corp.'s $240 million investment in Facebook Inc. The second largest was in the energy sector where Project Better Place scored $200 million from investors including Morgan Stanley and VantagePoint Venture Partners. Former SAP AG executive Shai Agassi started the company to provide batteries for electric cars in partnership with Renault SA and Nissan Motor Co.

Energy has been drawing a lot of attention from VCs, many of whom hope to transfer their IT experience to the sector. Energy investments totaled $1.6 billion last year, up from $1.1 billion in 2006.

Later-stage financings continued to absorb nearly half of the capital going to venture rounds. They drew $14.2 billion last year, up from $12.5 billion in 2006. This amounted to 49% of the money going to venture rounds, up from 46% in 2006.

The median amount raised in later rounds -- third rounds and on -- rose from $10 million in 2006 to $11.8 million last year. First and second rounds were basically unchanged at $5 million and $8.5 million respectively.

New Enterprise Associates was the top U.S. investor with 61 deals, followed closely by Draper Fisher Jurvetson with 60.

- With additional reporting from Brian Gormley.