Joining venture capital funds across the country, GrowthWorks Atlantic is protesting the federal government’s decision to phase out funding for Labour-Sponsored Venture Capital Corporations, saying it will hurt entrepreneurship in the outlying parts of the country.

GrowthWorks Atlantic is a Halifax-based fund that has $27 million under management, including $21 million invested in 19 Atlantic Canadian companies. It has raised money over several years by attracting funds from retail investors who are incentivized by federal and provincial tax credits.

However, the 2013 federal budget included a proposal to phase out the federal labour-sponsored VC  tax credit by 2017.

“We weren’t consulted at all on this even though we’ve been heavily involved in talks [with the federal government] on several files,” said GrowthWorks Atlantic CEO Tom Hayes on Wednesday. “We don’t think they fully understand the impact this will have, especially on the Quebec funds.”

The federal credit will remain at 15% for the next two RRSP seasons and then begin to be phased out.  The federal government will consult with stakeholders on potential changes until May 31.

Hayes said the pending cuts are inconsistent with “some of the good of the good things the federal government is doing” to channel capital to entrepreneurs, such as the $400 million it has committed to venture capital funds.

He said it will be business as usual for GrowthWorks Atlantic until the fund has time to assess the changes.  Hayes hopes the VC industry will be able to meet with the government and figure out some way to soften the blow.

Canada’s Venture Capital and Private Equity Association earlier Wednesday protested the move, saying the labour-sponsored funds are particularly active in regions outside the main centres of activity.

“We are puzzled at the Federal Government’s actions on tax credits for LSVCCs,” said association President Peter van der Velden in a statement. “It is the CVCA’s view that this budget measure poses a severe risk of constricting the supply of venture capital.”

GrowthWorks Atlantic has been active lately, joining in the investment in IntroHive of Fredericton and reinvesting in 2^nd Act Innovations of Halifax. Hayes said the fund is looking at a few follow-on investments and that Peter Clark, Vice-President Investments, is looking at funding some new companies in New Brunswick.