The record-shattering activity levels of 2018 may not be repeated this year but the US venture capital sector remains in rude health, a report says.

Venture capital funds raised $9.6 billion across 37 vehicles in the first three months of this year, as the record-breaking activity from 2018 cooled early in the year, according to the PitchBook-NVCA Venture Monitor report. (NVCA is the National Venture Capital Associate.)

The report said the data might suggest that the number of funds raised may shrink in 2019 even if capital raised increases. 

By quarter's end, investors deployed $32.6 billion in VC funding across 1,853 deals, a 10.5 per cent increase in volume and a 22.5 per cent decrease in count compared with the same quarter a year earlier.

Five VC mega-funds closed in Q1, headlined by Technology Crossover Ventures' $3 billion TCV X. The highest growth in the quarter came from funds sized $250 million to $500 million. From 2011 to 2017, these VC funds comprised less than 20 per cent of fund volume. This fund size comprised 20.5 per cent of funds raised in 2018 and increased to 30.8 per cent in the quarter across eight vehicles.

Several prominent firms, including Khosla Ventures, Andreessen Horowitz, New Enterprise Associates and Vivo Capital, are on the road with new vehicles seeking at least $1 billion.

"Despite uncertainties around the sustainability of 2018's record VC activity levels, the first quarter of 2019 bolstered healthy figures and is on track for another strong year," said John Gabbert, founder and CEO of PitchBook. "Investors continue writing larger checks to more developed start-ups, allowing late-stage companies the choice of operating in either the public or private market after weighing liquidity against transparency. When it comes to liquidity, there are several highly anticipated technology IPOs around the corner, and it will be vital to watch how private market valuations translate to the public markets."

"Investment momentum from 2018 continued in the first quarter of 2019, and the industry naturally has a close watch on the big tech IPOs this year. However, much of the focus remains on investing in the new wave of successful companies - across many sectors and across the country - building the next big thing, whether that's in areas like cybersecurity, robotics, applications of AI and ML, cancer treatments, neuroscience, or medtech [medical technology]," Bobby Franklin, president and CEO of NVCA, said.

The report said politics has hampered business activity “in a major way”, because the early 2019 government shutdown likely delayed the string of expected VC-backed initial public offerings. Other policy areas like foreign investment rules can hit fundraising from foreign LPs and capital from foreign co-investors into start-ups. The US government’s tougher stance on immigration also deters foreign entrepreneurs, Franklin said.

The venture-backed exit market retained some of its momentum from 2018 through the first quarter of 2019, as exit value reached $46.7 billion across 137 deals. While slightly lagging last year's pace in terms of exit volume, outsized liquidity events drove quarterly exit value higher.