5 Insights Into Venture Capital Entrepreneurs Need to Know Now These shifts define the state of VC today -- and the direction it will go in 2017.

Venture capital-backed investment activity peaked in 2015, but analysts don't expect that 2016 will live up to last year's record in terms of deals or dollars. In fact, the past three months saw the lowest activity of any quarter over the past two years.

In the U.S., seed funding has become especially hard to pin down, according to Venture Pulse, a report released this week by KPMG International and CB Insights. A smaller proportion of deals are early-stage, though the median size of these deals is rather high. Meanwhile, large-sum late-stage deals are less common than they were a couple of years ago.

Related: VC Funding Is a Pipe Dream, as Investors Pour Money Into Fewer Companies

But before you dismiss the prospect of venture funding as a delusion, it's important to examine how the investing landscape has shifted. Here are five developments that funding seekers should be aware of.

1. Silicon Valley isn't where all of the action is.

Deals in New York and California fell 26 and 27 percent year-over-year in the third quarter. Massachusetts, on the other hand, saw a year-over-year decline of only 16 percent, and of the three states, it was the only one that saw its deal count rise quarter over quarter.

From Q2 to Q3, Massachusetts funding doubled from $1.1 to $2.2 billion, thanks in part to mega rounds to companies such as Moderna ($474 million series F), Intarcia ($215 million growth equity) and DraftKings ($153 million series E).

Related: New Report Labels Boston a Better Hub for Startups Than San Francisco

Still, 34 percent of all VCs who invested in U.S.-based companies last quarter were based in California, compared with 11 percent from New York and 8 percent from Massachusetts. California is still the clear leader in terms of dollars and deals among the three states.

2. The election and other factors have caused economic uncertainty.

Two impending events have put a damper on investment activity. The report explores the likelihood that investors are holding out until after the November general election, as well as a interest rate hike expected from the Federal Reserve in December.

"Once both of these events are completed, the U.S. economy is likely to stabilize for a period of time," the report states. "Given the fundraising that has occurred over the past three quarters, it is likely that North American investors will be well positioned to make investments early in the new year."

3. Cybersecurity remains a focus among VC investors.

VC investment in cybersecurity companies remained relatively stable over the past several quarters. It has declined slightly, from $1.1 billion in Q3 "15 to $809 million in Q3 "16.

Related: For Cybersecurity Companies, It's Time to Shine

"The proliferation of mobile devices, changing business models, interconnected ecosystems and the increasing value attached to information are driving demand for, and VC investment in, integrated cybersecurity technologies," said Ronald Plesco, principal of cyber security services for KPMG in the U.S. "At the same time, there's been an increase in targeting by organized crime, nation states and activist cyber-terrorists of critical infrastructure industries and any industry that deals with data that has fungible value on the dark market."

In particular, companies that establish "deceptive networks to distinguish between good vs. bad traffic/events, in near real-time" will be especially attractive to cybersecurity VC investors, the report forecasts.

4. Mega-rounds are less common than they were last year.

There were far more financing rounds above $100 million throughout 2015 than there have been this year. In the third quarter of 2015, there were 73 "mega rounds," vs. 34 mega rounds in Q3 "16. As a result, the median size of late-stage deals has decreased. And this holds true not just in the U.S. and North America, but also in Europe and Asia.

"There is liquidity in the market, but VC investors are very hesitant to put the money to work," Arik Speier, co-leader of the KPMG Enterprise Innovative Startups Network and head of technology for KPMG in Israel, said in a statement accompanying the data. "Investors will likely continue to be cautious, with any late-stage deals linked to external milestones, such as development, market penetration, profitability or gross revenues."

5. Fewer unicorns are "being born."

Between July and September 2015, 25 new companies joined the unicorn club, or companies valued at more than $1 billion. In the first three quarters of 2016 combined, there have only been 22 new unicorns, with seven in both Q1 and Q2 and eight in Q3. Among the eight from the previous quarter are Compass, Unity Technologies and OfferUp.

"In 2015, companies fought to achieve unicorn status, when perhaps their real valuations did not warrant it," the report states. "With the clamour to find the next unicorn decreasing, investors are becoming more tactical with their investments."