TORONTO (Reuters) - Bay Street take note: Canada's venture capital industry is neither dead nor dying. Major US and Canadian companies are catching on to what some are already calling a sea change in Canada, where transactions were quietly announced in recent weeks by powerhouses like Google, Microsoft and Canada's own Research In Motion.

"I think we are really kick-starting a new cycle, and it's refreshing," Chris Arsenault, managing partner and chief operating officer at iNovia Capital Inc, said at the Canadian Venture Capital and Private Equity conference last week.

The venture capital sector, which typically invests in small start-up or developing private companies with the aim of taking them public, turned in some of its lowest investment figures ever in Canada in the past two years.

According to data compiled by the Canadian Venture Capital and Private Equity Association (CVCA) and Thomson Reuters, only C$276 million ($267 million) was invested in the sector in the first three months of the year, lower even than last year, when venture capital investing was at its lowest since 1996.

The drop has been squarely blamed on the global financial crisis, which choked off the market for initial public offerings and triggered a broader retreat from risk investing.

Yet venture capitalists, buoyed by growing Canadian government support for the sector, say the figures are misleading, hiding the potential for huge success.

Arsenault said a changing of the guard among investors and investment managers is adding momentum and bringing new strategies to the sector in Canada, where venture capital activity has historically been well below US levels.

Industry veterans say publicly traded companies who scaled back on research and development during the global financial crisis are increasingly looking at Canadian companies to jump-start new venues for growth.