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Canadian firms obtained 40 per cent less venture capital funds than their U.S. counterparts in 2008, according to a report released Tuesday from Canada's Venture Capital & Private Equity Association (CVCA) and Thomson Reuters.

Of those firms, those in Ontario have experienced the sharpest decline in funding, dropping 43 per cent in total dollars invested during Q3 2008. A total of $163 million was invested in 36 companies across the province, compared with $283 million in Q3 2007.

Still, Ontario had 44 per cent of all disbursements nationwide, down just slightly from its 46-per-cent share in the whole of last year.

According to the report, $372 million was invested in Canadian companies between July and September of this year – down 26 per cent from the $501 million invested at the same time last year. There were 123 companies financed in the third quarter, also down from the 140 Canadian companies financed in Q3 2007.

The CVCA said that as of "Sept. 30, just over $1 billion has been deployed to 296 companies, which is 33 per cent below the $1.5 billion that went to 336 companies during the same nine-month period in 2007."

Not only have there been less investments overall, added the association, the report also stated that the average amount invested per firm was $3.5 million in the first nine months of 2008, compared with an average of $4.6 million the year before.

Firms in the U.S. have averaged $9 million thus far in 2008.

"These investment numbers, which ultimately reflect the availability of capital in the venture capital industry, are worrisome in that they further confirm Canada's ongoing weakness in driving innovation," said Gregory Smith, president of the CVCA and of Macquarie Capital Funds Canada Ltd.

"The CVCA has developed a four-point commercialization support program to help address these VC industry trends and to increase the availability of venture capital for high-growth small businesses."

The CVCA's program calls for the federal government to make improvements to the SR&ED tax credit program, and to improve the incentives for corporations to invest in venture capital funds and actively promote investment in Canadian venture capital funds.