Venture-capital funding drops sharply in Southern California

Southern California is a hotbed of young and innovative companies, but you wouldn’t know it by following the money.

Venture-capital funding, the lifeblood of start-ups, has fallen sharply in the region so far this year, according to a report released Thursday.

Southern California companies raised $507.6 million from venture-capital investors in the first three months of the year, a 42% decline from the nearly $880 million in the first quarter of 2012. The data were compiled by Dow Jones VentureSource.

It’s the smallest amount raised in any quarter since the $507 million registered in the second quarter of 2009, just as the stock market was bottoming out from the global financial crisis.

VC funding fell across the nation, though far less so than in Southern California.

Companies nationwide raised $6.4 billion in the first quarter, according to the report. That’s an 11.8% drop from the first quarter of 2012, and a 20.8% decline from the beginning of 2011.

The decrease may be due in part to VC firms raising less money from investors. Nationwide, firms have taken $4.2 billion into their funds this year. That’s down from $6.3 billion in the first quarter of last year, but up from the anemic $2.6 billion in the fourth quarter.

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Follow Walter Hamilton on Twitter @LATwalter