very spring, venture capitalists have their annual meeting with their investors. The meetings are typically small, sometimes in a private room of a fine restaurant, and generally chummy.

But this year and in the past few years, venture capitalists have had to do more explaining than eating. Executives at some of the area's biggest funds say the annual meetings have taken on a somewhat somber, if not downright despondent tone, as the industry's troubles deepen.

"This type of volatility is very hard to explain," a local venture capitalist with more than a decade of experience told one such meeting late last month. "I can't for the life of me figure out what the hell happened."

Since peaking in early 2000, venture capital investment has plummeted for 12 consecutive quarters. The number of new companies being financed is the lowest in eight years. Returns generated by venture capital funds have been negative over several quarters for the first time ever. The industry is rife with speculation on which firms will go out of business.

After a year in which venture capitalists predicted that things would start rebounding quickly, few now are anticipating a turnaround soon.

"I think it's going to contract rather dramatically," said Jim Breyer of Accel Partners, at the National Venture Capital Association's annual meeting in New York last week. "I think we have two or three years before we actually hit bottom and start to recover."

But as the industry nationwide grapples with the difficult climate, the situation locally may not be as bad. Washington area venture capitalists, after a frenetic pace of investing in 1999 and 2000, seem to have settled at around 50 deals each quarter and about $250 million in total investment, the average over the past five quarters. In the first three months of the year $254 million was invested in 51 deals, according to the latest MoneyTree Survey.

"If anything we're doing a little bit better than the national trends," said Larry Alleva, a managing partner at PricewaterhouseCoopers, which conducts the quarterly survey along with the National Venture Capital Association and Thomson Venture Economics.

Nationally, total venture capital investment has continued to fall, down 12 percent in the first quarter. The number of deals also continued to decline, as well as the number of first-time investments in new companies.

Around Washington, however, the number of companies receiving venture funding for the first time has remained relatively strong, accounting for about a third of all the deals, up from the end of last year. Those first-time financings are seen by some as a bellwether of the industry's health.

According to the survey data, the area's most prolific investor early this year was an early-stage fund run by the state of Maryland. The Maryland Department of Business and Economic Development invested in almost three times as many companies in the first quarter as the region's next two most active firms, venture giant New Enterprise Associates in Baltimore and Walker Ventures.

"I think that's just the planets aligning," said Tom Bodnar, director of the Maryland agency's investment financing group. The economic development agency has invested in a variety of small firms in recent years, hoping that some of them will grow to become large employers, providing both a direct and indirect return to taxpayers.

It should be noted that even though Maryland was the region's most active investor, Bodnar estimates the agency only doled out about $2 million. That's because most of his investments are smaller rounds of funding, rarely larger than $500,000, to very early stage companies. NEA, on the other hand, the second-most-active fund locally, can invest tens of millions of dollars in a single deal, including investments outside of the region. NEA was the most active local fund in the first quarter, with 17 deals nationally.

Even so, as an early-stage investor Bodnar finds himself at the curious nexus between the newest start-ups and the large local investors who have shied away from deals since the technology boom ended. And from that perch, Bodnar said he is starting to notice some promising signs.

"We are on the front lines, and we deal with the venture capital community on a daily basis," he said. "They're beginning to dip their toes in again."

Lower company valuations have made some investments cheaper to make, and Bodnar said more venture firms are becoming more opportunistic in making early-stage investments. But he warns that the shifts in some investments are not pervasive. For every well-performing company in each venture firm's portfolio, there are still plenty of struggling start-ups. There is still much pessimism and caution.

"The flood gates are not opening," Bodnar said. "We're bumping along the bottom."