Venture-capital activity in Canada has picked up since tumbling in 2009, but that doesn’t mean funding for startups is out of the water just yet.

That’s because the majority of the pickup in venture-capital activity has been in existing venture-capital funds and companies rather than new projects.

Since falling precipitously in 2009, the amount of money invested in venture-capital funds has risen. The Toronto-based Canadian Venture Capital Association reports that venture-capital investments rose by 28% in the nine months ended Sept. 30, to $905 million from the $709 million invested in the same period in 2009.

In fact, in the third quarter of 2009, ended Sept. 30 of that year, venture-capital investments in Canada hit their lowest point in 14 years, with the total invested falling to $217 million — a far cry from the $388 million invested during the same quarter in 2008.

Although the bounceback in investments makes venture-capital activity look as if it has recovered from its pre-recessionary levels, most of these dollars aren’t going to new startups, says Richard Rémillard, executive director of the CVCA: “Industry fundraising has been on a downward trendline.”

Funds, instead, went to existing projects. The same 107 firms that received venture-capital funding in 2009 also received capital in 2010. Had startups been receiving capital, the total number of firms would have risen.

Aside from the lack of support for new startups, existing startup funds with caps — limits on new investments that they are willing to accept — haven’t reached these limits, adds Rémillard.

Typically, companies have a cap on venture funds of about $100 million; once that amount is reached, no new investors — whether they be retail, private or institutional — are allowed in. But this year, no companies reached those limits.

“This is the first year ever we have heard of no funds closing,” Rémillard says.

And with funds invested by institutions such as pension funds shrinking, two trends are occurring: venture funds dedicated to startups have shrunk in size; and there’s ample opportunity for high net-worth clients to get a foot in the door.

Previously, a startup fund would usually seek $100 million and discourage individual investors from joining by making the minimum investment about $5 million.

“The fund did not want to be accountable to too many smaller players,” says Robin Axon, general partner with Toronto-based Mantella Venture Partners, a $20-million investment fund for startups that specialize in technology.

However, with venture funds for startups now shrinking to $20 million to $50 million, high net-worth individuals are more than welcome to invest in these funds, as $5 million constitutes a greater percentage of the total investment.

In addition, angel investors can utilize their business know-how in these projects, says Axon: “Investing in smaller startups is an excellent fit for angel investors as they bring not only their money to the table, but a host of business skills and knowledge as well.”

Technology and life sciences have been the biggest areas of growth for venture-capital activity — especially within the cleantech sector, says Rémillard.

“Cleantech has been getting a lot of attention due to government energy and infrastructure programs,” he says.

Opportunities to invest in startup companies specializing in the social media and mobile areas are also growing, says Axon.

And with more consumers expected to be buying a smartphone next year than regular handsets, and the federal government in the process of soliciting comments for a proposed angel tax credit, the time for high net-worth individuals to bet on a venture fund is now, says Axon.

“The tip to [financial] advisors is that there has never been a better and more appropriate time for angels to enter the market than now,” he says.

And with entrepreneurs not being able to gain easy access to seed money from larger pension funds and institutions, Axon says, they have had to get more innovative with their ideas to prove their cases to angel investors.

Says Axon: “The opportunities for technology startups are way more innovative than they were 10 years ago.” IE