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Venture-backed initial public offerings virtually screeched to a halt in the first quarter while merger activity also dropped off sharply.

Only four venture-backed companies went public between January and March, raising $345.3 million, according to data released yesterday by VentureOne Corp., a San Francisco research firm.

That's back to the level of the second and third quarters of 2001, despite a jump to eight IPOs during the fourth quarter that was hoped to presage an IPO recovery this year.

A two-year decline in merger and acquisition activity accelerated in the most recent quarter, with just 56 companies striking deals valued at $1.5 billion. The number of deals dropped by more than half against last year's first quarter, and the capital raised plummeted 79 percent.

"These things tend to go in cycles, and there's still a pretty negative psychology in the tech markets today," said Bob Latta, a partner at Wilson Sonsini Goodrich & Rosati law firm in Palo Alto.

While the economy appears to be on the upswing, "IPOs do tend to lag due to investor sentiment," Latta said.

In the first quarter of 2000, just before the technology bubble popped, 69 companies raised $7.4 billion in initial public offerings.

Diana Robinson, a VentureOne vice president, said the industry is still triaging the excessive numbers of startups that received initial funding during the boom.

"Until we work through those, we're going to see a slowing in the market," she said. That process is likely to continue at least through the third quarter, Robinson said.

Still, tentative signs of strength are emerging. Latta said several of his public clients are exploring acquisitions, in one case because its stock price has followed the markets up recently, giving it more purchasing power.

But most public companies are too concerned about diluting their earnings to acquire unprofitable startups, Latta said.

PayPal Inc. of Palo Alto and Synaptics of San Jose were two of the quarter's IPOs, generating $70.2 million and $55 million, respectively.

The largest mergers included Tsunami Optics of San Jose, which was acquired by Chicago's Stratos Lightwave for $21 million.

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