Venture capital investment in Los Angeles County fell in the first quarter to 29 deals, down from 38 at this time last year, amid concerns about lackluster initial public offerings in the technology sector over the last year.

At first blush, the steep drop in the amount of money invested in L.A. companies in the first quarter – $369 million compared with more than $1.2 billion in the same quarter last year – looked horrific, but last year’s number was skewed by the $1 billion investment in Hawthorne’s Space Exploration Technologies Corp. (SpaceX) by Alphabet Inc., the parent company of Google, and Fidelity Investments.

The data on first-quarter VC investing came from a report released last week by CB Insights and KPMG Enterprise.

As the number of deals shows, investor enthusiasm for tech startups has waned over the last few quarters after years of explosive growth. Cooling venture capital fervor began to hit Los Angeles about six months ago, said William Hsu, managing partner of Santa Monica’s Mucker Capital. Now, he noted, once sky-high company valuations are taking a hit.

“Valuation is getting compressed by 30 percent to 50 percent from the middle of last year,” he said of Series A investment deals. “A lot of deals that were getting done on hype and market opportunity now are getting done purely on revenue multiples or active-user multiples based on some sort of rational metric.”

The local trend follows slackening deal flow worldwide.

Global venture capital investment fell 8.6 percent in the first quarter to $25.5 billion, down from about $28 billion in the first quarter of last year, according to CB Insights. The number of deals fell to 1,869 from 2,121 – a decline of 12 percent.

Ebbs, flows

“The days of unhindered investor confidence are gone,” CB Insights wrote in its report. “With much of the global IPO market stalled in Q1 and many IPOs from the second half of 2015 having failed to realize their private-sector valuations, VC investors are becoming much more skeptical and demanding of their investees.”

Venice accelerator Amplify.LA cut the number of investments it made last year to eight, down from 15 in 2014, said Managing Partner Paul Bricault. Citing anecdotal signs of improvement, he said the program is targeting 12 deals this year.

“I wouldn’t say that it’s cause for alarm. The VC market is cyclical by its nature,” Bricault said. “A dip in the market is a natural occurrence.”

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