European venture firms raised three times as much money during the first quarter as they did a year ago, but U.S. firms saw their fundraising ability fall by 44 percent, according to a report released Monday.

European fundraising during the period rose to €788.7 million ($964.5 million)—about half of what VCs raised in total during each of the last two years. Fundraising in the United States fell to $3 billion from $5.3 billion a year earlier, according to VentureOne.

“This is the first time since the fourth quarter of 2002 that the amount of venture capital funds raised was in line with the quarterly amount invested in Europe,” said Steve Harmston, VentureOne’s international research director.

The report on venture funding came as KPMG and Dealogic reported that Europe has also surpassed the U.S. in the value of mergers and acquisitions completed so far this year. The firms estimated the total of the European deals at €190 billion ($232 billion), compared with $222 billion in the U.S., according to a report in European editions of The Wall Street Journal.

European VC investment increased to €880.3 million ($1.11 billion) in the first quarter of 2005, up from €739.9 million ($935.6 million) during the same period last year, VentureOne reported. The number of companies that received funding dropped 26 percent to 199 from 272 a year earlier (see European VC Investment Up).

Despite the apparent trend, the first-quarter fundraising jump in Europe can be almost completely attributed to two funds: Sofinnova Capital V fund, weighing in at €385 million, and Index Ventures III, a €300-million fund. Together, the two funds accounted for 87 percent of the European upsurge.

But the trend may be continuing into the second quarter, as several smaller European VCs have raised funds. Two recent examples include Crescent Capital, a Northern Ireland venture firm, which closed a £22.5-million ($40.9-million) second fund (see Crescent Closes Fund), and a new fund called Pontis, based in Austria, which will be investing €30 million (see TechNet Partners forms Pontis).

The drop in U.S. investment follows a trend of more conservative fundraising as VCs look to invest the $53.6 billion overhang in an environment of fewer attractive startups. U.S. venture investment dropped 16.4 percent during the first quarter and fewer startups received funding than at any point during the last five years, according to a report by VentureOne (see Venture Funding Down in Q1).

Startup valuations, however, increased an average of 23 percent, suggesting VCs are investing more wisely (see Startup Valuations Rising).