April 13 (Bloomberg) -- Fundraising by U.S. venture-capital firms fell 39 percent last quarter as universities, foundations and other investors avoided startups amid the recession.

Investors gave $4.32 billion to venture capitalists to buy stakes in new or closely held companies, down from $7.12 billion in the first quarter last year, the National Venture Capital Association said today in a statement.

The recession has cut into the market for initial public offerings and mergers, which venture capitalists use to cash in their investments. That has made it much harder for young companies to find the money they need to develop products and hire more workers, said Jim Watson, a partner at San Francisco- based CMEA Capital.

“I used to spend 15 percent of my time looking for capital for my companies, and now it’s 85 percent,” Watson said in an interview.

The largest funds raised during the quarter were $650 million by August Capital in Menlo Park, California, and $475 million by Bain Capital LLC in Boston, the NVCA said. Only 40 funds were raised overall during the quarter, the fewest since 2003. Three new venture firms raised their first fund, down from 10 a year earlier.

“Longer-term, it’s a concern that there aren’t a lot of new funds being raised,” Mark Heesen, NVCA’s president, said in an interview. “Even these highly sophisticated investors we deal with are skittish in this environment.”

No venture-backed companies have gone public in the U.S. since August, while the number and value of mergers involving startups has also plunged.

First-quarter statistics on how much venture capitalists invested in young companies are due to be released April 18.

To contact the reporter on this story: Tim Mullaney in New York at tmullaney1@bloomberg.net

Last Updated: April 13, 2009 14:14 EDT