US venture capital invests $7 billion in second quarter

* Total down 12 percent from year earlier

* Software spending increases; biotech falls

SAN FRANCISCO, July 20 (Reuters) - The U.S. venture-capital industry invested $7.04 billion in the last quarter, down 12 percent from the $8.01 billion it invested a year earlier, according to a Friday report, perhaps reflecting an increasing reluctance to invest at sky-high valuations some companies have demanded.

"Venture capitalists are being very sensitive about valuations, and if it's high, they're not going to invest," said Tracy Leteroff, global managing partner in the private equity and venture capital practice at PricewaterhouseCoopers.

The industry spread the cash among 898 deals compared to 1,057 a year earlier, according to the MoneyTree report from PwC and the National Venture Capital Association, based on Thomson Reuters data.

More early-stage deals got funded than at any point in over a decade, with some 410 companies securing backing at early stages, defined as the first rounds after the very earliest "seed" rounds. However, each deal was worth slightly less, on average, than in recent previous quarters, indicating venture capitalists were spreading their bets more thinly.

"They're forcing their companies to operate more capital-efficiently," said Leteroff.

In part, the smaller outlays are possible because so much of the funding went to less capital-intensive businesses such as software. Some $2.3 billion went to that sector last quarter, the most in more than a decade.

More capital-intensive sectors include biotechnology, which received $697 million, the lowest total since 2003.

The biggest deal of the quarter was a $148 million injection into the hybrid-automaker Fisker.