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Venture capitalists invested the most money last year since 2007, pumping $21.8 billion into 3,277 deals in 2010, according to a MoneyTree Report released today by PricewaterhouseCoopers and the National Venture Capital Association.

Using data from Thomson Reuters, the study showed a spike of 19 percent in dollars and a 12 percent rise in deals over the prior year, with almost all sectors showing double-digit gains.

Investments in the fourth quarter of 2010 alone totaled $5 billion in 765 deals, a 2 percent increase in dollars, but a 3 percent decrease in deals from the prior quarter, when $4.9 billion went into 789 deals.

The stats are welcome news for an industry that had struggled at times in 2010 to prove it was no longer spooked by the credit crisis and was ready to jump back into the fray.

The software industry roared back to reclaim its status as the single largest investment sector for the year, rising 20 percent over 2009 to $4 billion in 2010, which was poured into 835 deals.

The investment was a 21 percent rise over the prior year and helped make software the number one sector for both dollars invested and total number of deals in the fourth quarter.

It was also the only industry sector to receive more than $1 billion during that same period.

Overall, software investing leapt in the fourth quarter of 2010 to the highest quarterly dollar level since the third quarter of 2007, with $1.1 billion going into 218 deals.

Other sectors reaping the benefits of less cautious VCs included the clean technology and Internet-specific categories, which both saw double-digit increases.

Investment dollars also increased across every stage of development, except seed-stage investing, which fell 2 percent.

However, first-time financings rose in 2010 compared to the prior year, despite a fourth quarter drop in both first-time dollars and deals when compared year-over-year.

All of this bodes well for VC financing in 2011, said Mark Heesen, president of the NVCA, who said the community is clearly in recovery mode with investment levels reflecting the economic reality of the VC business overall.

“Continued fundraising and exit market challenges have greatly reduced the probability of investment bubbles in specific sectors as there simply is not enough capital to overinflate any particular market,” said Heesen. “The year’s increase in first time deals and early stage investment is encouraging as this trend suggests that the venture community is doing more with less.”

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