Venture capital investment in European cleantech firms slumped by more than half in the first quarter of the year compared to the last quarter of 2007, according to new research from analyst firm Library House.

However, the company immediately downplayed concerns that the sector had entered into a decline, insisting that as a relatively small and immature industry, quarterly fluctuations in investment levels were to be expected.

New research from the company showed that while overall disclosed venture capital investment in Europe rebounded in the first quarter of the year climbing 11 per cent on the previous quarter to €1.4bn, investment in cleantech firms fell 52 per cent from €255m in the fourth quarter of 2007 to just €122m in the first quarter of 2008.

Richard West, senior analyst at Library House, admitted that the headline figures looked concerning for the sector, but insisted that closer inspection of the figures revealed that the outlook for cleantech investment remains healthy.

"The number of deals has remained pretty constant with 41 deals in Q1 compared to 46 in Q4, while the proportion of undisclosed deals has climbed meaning that total investment is higher than the figures show," he explained, adding that the relatively small size of the sector meant that one or two big deals would inevitably result in quarterly fluctuations in investment levels.

However, he also admitted that while enthusiasm for cleantech firms amongst venture capitalists remained high, the drop in investment suggested "a bit more caution is filtering into the market in terms of deal selection".

But despite this caution, West predicted investment would rebound in the second quarter, citing recent Ernst & Young research showing that US cleantech investments during the first quarter climbed 18 per cent year-on-year to $571.6m.

"On the other side of the Atlantic, the market is continuing to grow steadily and I'd expect the sector to rebound in Europe as well during the next quarter, " he said.