The federal government is helping kick-start a new Atlantic Canadian venture capital fund to the tune of $10 million.

It's hoped the new labour-sponsored fund, run by GrowthWorks Ltd., a Canadian venture capital firm, will help Nova Scotia's lack of funding in the field.

"Entrepreneurs find it especially difficult to get access (to) venture capital in this region," Joe McGuire, minister for the Atlantic Canada Opportunities Agency, said while announcing the GrowthWorks Atlantic Venture Fund on Friday in Halifax.

ACOA is the vehicle Ottawa has used to finance the $10 million, a repayable amount to be rolled out over the next five years. The money will be used for GrowthWorks' startup and operations.

The fund will provide emerging and growing small and medium-size businesses with financing ranging from $500,000 to $5 million and will be administered locally with the help from a local business advisory council. Mr. McGuire said venture capital funding in this region represents only two per cent of the Canadian market.

"That is well below the seven to 10 per cent that should be in our region, based on our population," he said.

Ernie Fage, the province's economic development minister, welcomed the presence of the venture capital fund in the region.

He said it should translate into increased opportunities for businesses that need cash to grow.

He acknowledged the province's poor grades in raising cash for companies; that downfall was recently noted in a report card issued by Nova Knowledge, a non-profit group dedicated to strengthening Nova Scotia's economy.

"The Nova Knowledge report said that venture firms are not investing in startup companies and fast-growing companies here in Nova Scotia," Mr. Fage said. "It is not because there is a lack of money, ladies and gentlemen."

Nova Scotians pump about $600 million annually into their RSPs, so there is cash on hand, but because of the lack of venture capital firms on the ground here, the money leaves the province, he said.

"So the money's here, but the investments are not being made," he said. "Partly that's because venture capital firms invest closer to their office."

David Levi, Vancouver-based president and CEO of GrowthWorks Ltd., said investing from "afar" is a difficult model, and that's why having an office in Halifax will help stem the flow of outbound cash.

"The idea of trying to operate nationally in a region like Atlantic Canada made no sense," said Mr. Levi.

Since his firm took over another venture capital operation here a couple of years ago, it's invested more than $11.5 million after receiving more than 100 business plans from entrepreneurs, he said.

That's a different picture than his operation was provided by sources in Central Canada, said Mr. Levi.

"We had heard . . . there were only limited opportunities in Atlantic Canada," he said. "That was sort of the view from the Greater Toronto area."

Tom Hayes, former chief of staff for former premier Russell MacLellan, will run the regional operation.

ACOA hopes the fund, which has the support of the Nova Scotia Federation of Labour and its counterparts throughout Atlantic Canada, will grow to about $100 million.

Fred Morley, vice-president and chief economist of the Greater Halifax Partnership, said new capital for this region is great news, but says a lot more is required.

"I think we need lots of them," Mr. Morley said of such initiatives. "This is obviously great news. I'd love to see more private funds in here as well. This does address part of the gap that's here."

A lot of firms need "early stage" funds to help them grow, he said.

Wayne Bussey of the Telecommunications Application Research Alliance, which promotes development of the region's information technology industry, was "delighted" at the news but called for more such investment.

"It's a step toward a venture capital industry (here), but it's not the full answer," Mr. Bussey said, adding Friday's news is a "brick" in the wall but "not the full wall."

He also lauded ACOA's efforts to facilitate the arrival of GrowthWorks.

In an interview after the announcement, Mr. McGuire said GrowthWorks met all the criteria ACOA required for the loan, adding it was the first company to approach the agency.

But it likely won't be the last, as others are also interested, he said.

Negotiations between ACOA and GrowthWorks have been underway for more than six months.

Nearly 60 per cent of new jobs in this region are generated by small and medium-size businesses.