Mirroring the doldrums of their U.S. counterparts, European venture capitalists extended their slump in the second quarter, closing a meager 167 deals, according to a new report.

Dow Jones VentureSource, which reported the results, said the deal level was the lowest in at least nine years and the 858 million euro invested represented a 35 percent decline from the 1.3 billion euro pumped into 286 deals in the second quarter of 2007.

In the United States, a sputtering economy and skittish investors slammed shut the initial public offering market in the second quarter, prompting the National Venture Capital Association, a trade group, to declare a “crisis for the start-up community.” Jessica Canning, director of global research for Dow Jones VentureSource, said Europe is facing similar hurdles. "Much like in the U.S., the European venture industry is experiencing great softness in the IPO and M&A markets, and this is putting a damper on deal flow," she said in a statement.

In a shrunken VC arena, Germany emerged as a winner. Germany notched 29 deals worth 264 euro, a 29 percent year-over-year increase, making it Europe’s top venture capital magnet. By contrast, the United Kingdom, France and Sweden witnessed sharp declines in euro volume. Though the UK’s 48 deals led the continent, its investment level of 193 million euro was 49 percent lower than in the year-ago quarter. France recorded 34 deals worth 100 million euro, declines of 46 percent and 59 percent.  In Sweden, 11 deals attracted 55 million euro, a 49 percent drop from the 2007 period.

The dreary picture was tempered by an increased proportion of funding going to early rounds, Ms. Canning said, an indication that more companies are entering the venture capital stage. In the first half of 2008, she added, 44 percent of European venture deals were seed or first rounds, the highest level since 2001.

Information technology startups accounted for 86 deals in the second quarter, a 46 percent decline versus the 2007 period, and the quarter’s 435 million euro investment total was 40 percent lower than the prior year’s figure. Software companies’ 34 deals was the lowest quarterly count on record, according to the study.

Biopharmaceuticals led the decline in health care investment, which fell 55 percent to 164 million euro in 32 deals.

A bright spot was the energy and utilities industry, which snared a record 147 million euro in 10 deals. The biggest deal of the quarter was the 85 million euro pumped into Germany’s Sulfurcell Solartechnik, a photovoltaic cell maker.