By Nathan Rudyk

I have to admit that this month's Ottawa Venture & Technology Summit (OVTS) had a scary dimension. The news on VC fundraising was ghoulish in the face of the ongoing credit crisis. To add urgency to that fear, as you listen to's Holloween podcast, recorded at OVTS, it's clear Ottawa’s angel and venture capital investment community believe their newly elected government representatives on Wellington Street don’t grasp the opportunity offered by the tech sector.

OCRI President and CEO Jeffrey Dale said, “Our innovation economy is producing more jobs than the auto sector and the resource sector combined but we don’t seem to have much focus on it. Our public policy better pay very close attention to the challenges.” Indeed.

One challenge to the innovation economy that requires immediate attention is a couple of paragraphs in something called "Section 116" said Irving Ebert, a former Nortel executive who has invested in 27 Ottawa technology companies as part of the Purple Angel investor network. Section 116 is an esoteric part of Canada’s tax code that makes it unduly difficult for foreign investors to get their money out of the country once a tech company is bought or goes public. (Check out Charley Lax's peHUB blog post for more on 116.)

“This thing has no impact on revenues flowing into the Canadian treasury,” said Ebert. But it does stop many high tech investors cold at our border, and causes Ottawa companies to locate in the U.S. or elsewhere when they grow enough to warrant venture capital investment. He cited the recent local example of MODASolutions Corp., an e-payments company that moved out of Ottawa to relocate in New York.

What difference would such changes make? Israel has no such barriers to investors, according to Ebert, where the population of the entire country (8 million) is less than the population of Ontario (12 million), and the amount of venture capital there is greater than that invested in all of Canada.

With such barriers out of the way and a concerted focus on building the tech sector, does Canada have what it takes to succeed? Absolutely, believes venture capitalist Bernie Zeisig, who has just launched a new Ottawa-based fund called Great Northern Capital concentrating exclusively on emerging growth-stage technology firms with established products and revenues of approximately $5 million. “Canada has strong technology – nobody’s going to question that,” said Zeisig on the podcast. But he also points out Canadian entrepreneurs need to be encouraged to think on a global scale.

With a quick fix to the tax code and some globally scalable thinking from the politicians on Wellington Street, Canada's tech sector can easily beat back the ghouls of the credit crisis and contribute more wealth ($140 billion a year right now) and jobs (600,000-plus). Check out our podcast and see what you think.

(Nathan Rudyk is President and CEO with market2world communications inc., Ottawa, Canada's tech PR and product marketing agency, and founder of the tech business podcast.)