I had a very informative conversation with Richard Remillard, executive director of the Canadian Venture Capital Association, this past week. Richard provided me with some fascinating insights into the state of venture capital in Canada, and what it means to IT in Canada. Here are some of the highlights:

There is less capital available than in the past. In 2000, Canadian VCs raised $5.9 billion in investment funds; in 2011, only $1.1 B was raised. 2012 is better than 2011, with $1.4 raised YTD, but that's still a far cry from the pre-dot.com bubble days.

Why is this happening? In a nutshell - a lack of exits. Here's the count of IPOs for VC-backed companies in Canada over the past several years: 2008, 1; 2009, 1; 2010, 1; 2011, 2; 2012YTD, 0. It's important to remember that VCs don't "buy" ideas or even companies, they invest in exits. IPO is an important exit route - not the only one (there are 35-38 M&A transactions per year in Canada - and these can work out well for investors; just ask the very-happy backers of Radian6!), but an important one; if that door is closed, or even just ajar, the flow of money into VC funds diminishes.

Why this matters to IT: ICT accounts for 40%-55% of Canadian VC investments - so a dip in available funds affects the industry very directly

The good news is that, as a result of the economies associated with cloud computing, each new investee requires less capital (I believe that Richard pegged the funds needed at $200k/company, and others put it lower), so a diminished pool of funds doesn't necessarily mean a diminished group of funded companies.

The downside to both cloud economics and the economy in general, though, is that there are more early-stage firms seeking funding. The same cloud economies that reduce the amount of funding needed to establish a company also lower barriers to entry, making it possible for entrepreneurs to move quickly from idea to product. And there are more entrepreneurs overall in Canada than there used to be; Richard used numbers suggesting that there are at least 50% more entrepreneurs today than there were in 2000.

The "net net"? Richard looks out over a 12 year cycle: at the start, there was more capital supply than high-quality early-stage demand, and today, the balance is reversed, with more firms looking to participate in a reduced funding pool. According to Richard, though, there are "green shoots" appearing - increased investment in 2012, and (or perhaps, "supported by") positive investor returns from companies like Radian6. It looks as if more VC money will come available in the near term - and if institutional investors participate more actively, and/or if the IPO market rebounds, we could see a substantially-increased funding pool available to support early stage Canadian ITC companies.