Investments in U.S. venture capital firms jumped 62 percent in the first three quarters of 2005 over the same period a year ago as pension funds, endowments, and other limited partners sought to boost their returns, a study released Monday said.

Over the nine-month period, VCs raised some $17.3 billion, surpassing the total for all of 2004 in just three quarters.

In the third quarter alone, 45 firms raised investment funds worth $5.39 billion, up 11.6 percent from the $4.83 billion that 54 firms raised during the year-ago quarter, the National Venture Capital Association study showed.

During the quarter, the average amount each firm raised rose 34 percent to $120 million from $89.4 million during the year-ago quarter.

Still, many venture firms are opting to raise smaller funds. High-profile firms such as Mayfield (see Mayfield Raises $375M) and Morgenthaler have each opted to shrink their fund sizes.

“We could have easily seen a $50-billion to $75-billion fundraising year had the venture industry not exercised prudence and accepted more money than could be invested successfully,” said NVCA President Mark Heesen.

Morgenthaler is one example of a firm that has closed a new fund that is smaller than its old fund. It last fund just closed at $450 million, whereas a fund raised in 2001 invested $850 million.

“We began to look at the velocity of which we could do deals,” said Gary Morgenthaler. “Our partners can manage a fixed number of board relations and to make new investments you have to have exits.”

New Firms

Some of the money that established funds are turning away is going into new firms like Spark Capital (see $260M for Digital Media Fund). Todd Dagres, a Spark founder, said he had planned to cap the $260-million fund at $200 million, but relented when his investors said they were willing to invest up to $800 million in the new fund.

Ten new firms raised capital during the third quarter and 35 existing firms sought more money.

Some investors have turned away from venture all together. Buyout funds and mezzanine funds, which make large late-stage investments, have raised $54 billion so far this year, up 61.4 percent from the $33.5 billion raised during the same period in 2004.

Some 45 buyout and mezzanine investment funds raised $16.8 billion during the third quarter, up 23.5 percent from the 44 funds that raised $13.6 billion during the same period last year.

“The dollars that are being turned away from venture are likely being channeled into buyout funds and hedge funds, helping to drive the surge of capital into those asset classes,” Mr. Heesen said.