Venture capital funding continued to rise in the first quarter of 2007 as VC firms took advantage of a seemingly healthy startup market, deploying capital to overcome what is still a large overhang from the post-bubble years.

Total venture investment tracked by VCDeal.com reached $4.296 billion in the first quarter, with 261 fundings averaging $16.5 million. (Statistics from VCDeal.com include only publicly announced fundings, whereas other quarterly surveys include data that has not been publicly released.) VC investment by state in Q1 2007

A healthy M&A market drove activity, as well as a stronger appetite on the part of public investors for venture-backed initial offerings, particularly in hot areas of drug development, media, Internet and software.

Pharmaceuticals led the pack with 26 deals totaling $805 million in the quarter, led by Cambridge, Mass.-based Targanta Therapeutics Corp.'s $70 million third round in February for development of infectious disease therapeutics. The sector accounted for the bulk of the largest fundings overall as startups stockpiled money necessary for funding the lengthy and expensive clinical trials required to bring drugs to market.

Rather than chip away at the cost of such programs incrementally, drug developers have increasingly sought to raise large rounds to fund development all the way to crucial Phase 2 data that can draw M&A interest or support floating a public offering. Investment ranked by rounds

Targanta's deal was followed closely by another company targeting the lucrative and growing market for anti-?infectives, as Paris-based Sanofi-Aventis SA spinoff Novexel SA drew $65.1 million in a second round closed in January.

Media, also one of the most active sectors, drew $408 million in investment in 15 deals. But big deals were scarce, with only two companies drawing rounds of more than $50 million. Online marketing services startup Vantage Media LLC of Venice, Calif., drew $70 million in a first round in March from Integral Capital Partners, Montgomery & Co. LLC, Scale Venture Partners and Tudor Ventures. Internet TV service provider Brightcove Inc. attracted $59.5 million in a January third round from a large group of investors including strategic investors AOL LLC, New York Times Co., Hearst Interactive Media and IAC/InterActive Corp. Q1 2007 venture capital investment by industry

Wireless companies were a strong area of interest to investors, with deals crossing sector classifications in wireless equipment and technology to software, semiconductors and media. The category drew the largest investment of the quarter, with $107 million going to Los Angeles-based Amp'd Mobile Inc. in a fifth round that brought total investment in the 2-year-old service provider to $350 million.

With deal sizes typically smaller than other popular sectors, medical devices was among the leaders in numbers of deals, drawing $374 million in investment in 24 companies. Device investors continued to bet on an active M&A market in which publicly traded industry leaders typically snap up startups once devices are approved for marketing by the U.S. Food and Drug Administration.

In the only device deal meeting the $50 million threshold, InnerPulse Inc. of Research Triangle Park, N.C., raised a $50 million third round in January to support development of implantable heart defibrillators.