BOSTON – Mark Zuckerberg was the big one that got away.

Boston venture capitalists declined to fund the founder of Facebook, the world’s most popular social networking service, when he sought money to expand his startup in 2004.

But Zuckerberg’s move that year to Palo Alto, Calif., from his Harvard University dorm was a wakeup call for New England firms, which have lost market share to Silicon Valley and New York in the past seven years, says Michael Greeley, a general partner at Flybridge Capital Partners.

“There was a little bit of shock that we missed it, as a community,” Greeley, a board member of the National Venture Capital Association, said in an interview.

Since then, Boston “really rallied around ‘how do you let these kids know that the state is open for business and a great place to start companies?’ Sort of a post-Facebook echo boom effect. Zuckerberg should never have left.”

Greeley’s firm in 2009 started Stay in MA, one of several programs designed to entice young entrepreneurs to stay in the region. Incubators offer free space to aspiring entrepreneurs, and angel investors are scouting campuses in search of the next Zuckerberg, Greeley said.

Trailing the Valley

Boston, the birthplace of modern venture capitalism, accounted for 11 percent of U.S. venture investments last year, down from 15 percent in 2003. Silicon Valley firms increased their share to 39 percent from 34 percent in the same period.

Valley firms raised almost three times as much money as their New England counterparts in the past five years and almost seven times as much in the first quarter of this year.

As a result, Boston missed out on much of the recent surge in initial public offerings, which was driven in part by Internet startups. Of $6.83 billion in venture-backed IPOs in the first half of this year, Massachusetts accounted for just $209 million, or about 3 percent, compared with 11 percent on average for the past decade, the NVCA said last week.

Part of the reason, says Bill Aulet, managing director at the MIT entrepreneurship center, is that Boston’s venture capitalists tend to focus on industries that make “real products” such as software, telecommunications, material sciences and biotechnology.

Biotechnology startups have been the biggest recipient of Boston venture capital, accounting for about a third of investments in the region over the past five years. MIT president Susan Hockfield, a neuroscientist, said in her 2005 inaugural address that she wanted the school to lead in that field.

Back in the loop

Many of the region’s venture firms are based near Route 128, a highway that connects Boston’s western suburbs in a semi-circle and was once nicknamed America’s Technology Highway.

The area is still home to companies such as Raytheon Co., the biggest maker of missiles, Thermo Fisher Scientific Inc., the largest maker of laboratory instruments, and Biogen Idec Inc., the world’s largest maker of multiple sclerosis medicines.

Being outside of the city made it harder for firms to stay in touch with students, said Kate Castle, vice president of marketing at Boston-based Flybridge and a board member of the MIT Enterprise Forum Cambridge, which helps connect technology entrepreneurs.

“The T doesn’t go out there,” Castle said, referring to the Massachusetts Bay Transportation Authority, operator of the public transportation system in the area. Students are “not going to rent a car.”

To be closer to the universities, at least seven firms have opened offices in Cambridge in the past two years and one, Charles River Ventures, is planning to do so. Spark Capital, one of the early investors in Twitter and Tumblr, started in downtown Boston six years ago.

Turned down in ’04

Zuckerberg’s Facebook tried to raise money in the Boston area in 2004 and was turned down by Battery Ventures, a firm in the suburb of Waltham that helped start companies such as Akamai Technologies Inc., which sells server space that helps websites load faster, and wireless communications provider MetroPCS Communications Inc.

Facebook is valued at $82.4 billion on SharesPost Inc., a secondary exchange for shares of private companies. The company may seek an IPO in the first quarter of 2012 with a valuation as high as $100 billion, CNBC reported June 13, citing people familiar with the matter.

“It’s not Boston’s historical strength,” Sunil Dhaliwal, a general partner at Battery, said about the consumer Internet business. “Relative to other geographies, we’ve been playing catch-up.”

Part of the reason Facebook didn’t find funding in Boston, and that area firms missed out on the social networking boom, is because many didn’t grasp its significance, said Howard Anderson, 66, a senior lecturer at the MIT Sloan School of Management and co-founder of Battery Ventures.

“It became a generational issue. You couldn’t really understand social networking here,” he said. “To understand things like Facebook, you have to be 19 to 24 years old. If you’re 56, you don’t quite get it.”

Andrew McCollum, who was part of the original Facebook team at Harvard until he left in 2006, said there is much more excitement now about entrepreneurship at the school and in the city than when he left.