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People tied to Canada's beleaguered venture capital industry are starting to sound the alarm. It has been about a decade since the industry saw any real signs of life, and they fear that a dwindling VC market will have disastrous consequences for Canada's economy over the long-term.

The latest fundraising numbers have especially put them on edge. In the second quarter, venture capital invested in Canada totalled $328-million, according to the CVCA, down slightly from same period last year. But new commitments to venture cap funds totalled $132-million, down almost 60 per cent from the second quarter of 2010.

For some perspective, in 2000, $5.9-billion was invested in 1007 Canadian startups, according to Thomson Reuters. Last year, just $1.1-billion was raised by 357 Canadian firms, as pointed out in a Globe examination of the industry's problems last week. Of course, 2000 was the height of the tech boom so people were throwing money at tech startups without even looking. But Canada's VC market really hasn't come back since this time, even during the run-up to the Great Recession.

Coming out of the financial crisis, Canadians hoped that both private equity and venture capital would rebound. Although private equity certainly has, the same isn't true for venture capital, and that's troubling.

"After a period of steady, if moderate, expansion in VC invested, it is very concerning to see weaker dollar flows at this point", said Gregory Smith, CVCA president and managing partner at Brookfield Financial. Note the 'very concerning.'

The stats are so worrisome that some people have argued the Canadian government should get involved to shore up the industry. Potential reforms could include mandating the country's largest pension funds to allocate a small fraction of their portfolios to venture capital. Ever since the Canadian government allowed the pension funds to hold more foreign assets back in 2001, risky venture capital has seemed less attractive. Plus, some U.S. state pension funds have been mandated to do this, and that's put the industry in better shape south of the border.

One of the people who advocates for this is David Rogers at Caledon Capital Management. "There's a real crisis right now: the big pension funds have abandoned the space, the small pension plans aren't capable of evaluating the venture capital opportunities and those that maybe participated in the early and late nineties didn't get great returns," he told the Globe and Mail.

But he isn't advocating for reforms simply because he wants to make a profit. He thinks the problem is systemic and argues that Canadian darlings such as Open Text and Research in Motion would have never gotten off the ground without startup funding back in the day. If we want to see the next round of these firms develop, he, and many others, believe we need to support them.