Venture capital investments hit a three-year high last quarter, with 966 U.S.-based companies raising $7. billion, according to the MoneyTree Report from PricewaterhouseCoopers, the National Venture Capital Association and Thomson Reuters. This represents an 18.7% increase over Q1 volume, and the highest quarterly dollar total since Q2 2008.

All stages of VC investment experienced growth, with both early and later-stage financings rising 24%. Software led all industry sectors with a 25% market share ($1.5 billion), followed by biotech ($1.2 billion), medical devices/equipment ($840 million) and IT services ($763 million). Of the 15 industry sectors tracked by MoneyTree, only six lost ground between Q1 and Q2.

Silicon Valley easily maintained its geographical edge, with 1,037 of its companies raising around $5.58 billion. New England was next with $1.12 billion for 119 companies, followed by NY Metro with $624 million for 98 companies.

MoneyTree reports that the quarter’s largest deal was a $165 million investment in CSN Stores, a Boston-based online retailer of home goods. Backers included Battery Ventures, Great Hill Partners, HarbourVest Partners and Spark Capital. It was a fascinating deal — the nine-year-old company generated $380 million in 2010 revenue without ever before raising outside capital — but it also falls outside of the MoneyTree inclusion criteria. According to a regulatory filing, around half of the CSN deal was used to provide existing shareholder liquidity — meaning that the round should only stand at $85 million. At the same time, MoneyTree entirely ignored a $400 million investment in daily deals site LivingSocial — of which around half was shareholder liquidity (thus making it the quarter’s largest deal with $200 million). And then there was a $168 million investment in thermal power company BrightSource by Google, which got ignored even though MoneyTree is supposed to include corporate venture capital.

I requested comment on the discrepencies, and will update this post if I hear back.

In general, the MoneyTree folks credit the Q2 increases with an overall pickup in the venture exit environment.

“The rise in venture capital investments going into the Life Sciences and Internet sectors can be attributed to the increase in exit activity in the Life Sciences sector and attractive valuations for Internet companies,” said Tracy Lefteroff, global managing partner of the VC practice at PwC US.  “The exit market for both biotech and medical device companies has been active over the past year, and this has encouraged VCs to put more money back to work in this space.  It also makes sense that we’re seeing an increase in VC investments going to Internet companies, when you take into account the valuations on some IPOs that have priced recently, particularly in the social networking space.  As long as the markets continue to reward these companies with attractive valuations, we would expect to see a strong level of venture capital funding in that space.”