U.S. venture capital investments dropped overall, and the software industry felt the impact, but it also retained its throne as the biggest single industry category in terms of both dollars and deals.

Across all industries, VC firms in the United States invested $5.4 billion spanning 818 deals, marking a decline of 8 percent dollar-wise and 4 percent fewer actual deals, constituting a 26 percent drop from the $7.3 billion invested in the third quarter of 2008, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association (NVCA), based on data from Thomson Reuters detailed in a conference call for press and analysts on Friday.

"This marks the first decline since 2003," says Matthew Toole, research director, private equity, at Thomson Reuters.

The software industry, for its part, spiraled downward to its lowest quarterly investment level in 10 years: $1 billion. The number of deals also declined, to 194, which marks the fewest software companies funded since 1997. But the numbers for all of 2008 are not as gloomy as the fourth quarter. Annual declines were 10 percent to $4.9 billion and 7 percent to 881 companies.

But there's good news for those in the IT and software industries.