Activity in Canada’s venture capital market grew in 2011, with the highest level of VC invested in four years, though still substantially below the level recorded in 2007, according to a report released Tuesday.

At the same time, the VC industry’s ability to meet strongly rising demand with further investment growth is threatened by continued weakness on the fund-raising front, suggests the report by CVCA-Canada’s Venture Capital & Private Equity Association and research partner Thomson Reuters.

According to the report, VC invested across Canada totaled $1.5 billion in 2011, up 34% from the year before. Indeed, disbursement levels were the highest since 2008, though they remained well shy of the $2.1 billion invested in 2007. Increased dollars invested went to 444 domestic firms in 2011, up 24% year over year.

“Canadian VC investment rose in 2011 to meet surging demand for risk capital, fuelled by rising levels of entrepreneurship, the activity of business incubators, and R&D incentives, notably the Scientific Research and Experimental Development (SR&ED) program”, says Gregory Smith, president of the CVCA and managing partner, Brookfield Financial Corp.

The report found increased Canadian VC market activity in 2011 was felt in virtually all innovation sectors of the economy. Trends were led in IT sectors, with $692 million invested last year, up 41% from 2010. In addition, life sciences received $343 million, up 15% over the same period, while clean technology received $245 million, up 43%.

CVCA remains concerned about the ability of VC fund-raising activity to support continued investment growth in the years ahead. The report found new commitments to Canadian VC funds were almost unchanged between 2010 and 2011, with $1.0 billion raised in the latter year, up only 2%. Funds raised in the American VC market, in contrast, rose 32% year over year.

The 2011 statistics reveal that Ontario and Québec were tied in VC market share this time around, with both absorbing 36% of all disbursements, or $550 million invested and $549 million invested, respectively. Deal-making was also up in British Columbia, Alberta, and Atlantic Canada last year.