Australia's venture capital (VC) industry is facing near extinction, according to Australian Venture Capital Association (AVCAL) chief executive Katherine Woodthorpe.

In 2009, funds raised by VC firms fell by 19 per cent from the previous year to $263 million, according to the association's annual "Australian Private Equity and Venture Capital Activity Report".

"Superannuation funds have a very important role to play in investing in this sector," Woodthorpe said.

"If superannuation funds invested just 0.5 per cent of their portfolio into venture capital deals we would have a thriving sector."

She acknowledged timing issues could prevent superannuation funds from investing in local venture capital transactions.

"There is now a small window of opportunity for some of these funds to take advantage of offshore venture capital opportunities," she said.

Although superannuation funds need a performance track record in order to assess potential VC deals, Woodthorpe said a track record could only be established when investment took place. 

The report also highlighted that the fortunes of Australia's VC and private equity (PE) sectors were now markedly divergent.

In comparison to funds raised by VC, the PE sector raised $1.6 billion, a little higher than the previous year.

The report found the bulk of the funds raised by PE managers was invested in companies within existing PE portfolios to help them weather the downturn.

"The activity documented in 2009 dispels the myth that private equity was only prospering on a wave of cheap credit," the report said.

"The industry has proved its ability to weather current economic conditions and is poised to become a long-term player in Australia's economic future."