Canada is set to announce a new program that would enable some prospective immigrants to acquire residency visas by investing at least 1 million Canadian dollars ($890,000) in a venture-capital fund, a scheme some other western countries have used to attract wealthy, mainly Chinese, newcomers.

    Ottawa will create an new immigrant class for individuals who could place C$1 million to C$2 million in a VC fund that would in turn invest in startups, according to a person familiar with the matter. The government is targeting investments totaling around C$120 million, that person said.

    Ottawa scrapped a previous immigrant-investor scheme in February, and canceled a backlog of tens of thousands of mainly Chinese applicants. That move was seen as another sign that Canada was becoming less welcoming to China and its investment, coming not long after Ottawa shut the door on Chinese state-owned investment in Canada’s oil sands.

    Ottawa denied that view, saying the visa program, which granted permanent residency to those who committed C$800,000 to a five-year zero-interest loan to a Canadian province, allowed people to effectively buy their way into the country without making an investment or taking any risk.

In recent years, Canada has let in more immigrants per capita than any other Group of Seven country.

The new venture-capital linked scheme addresses the view that the previous scheme undervalued Canadian permanent residency and enabled some applicants to gain residency without moving to Canada. Canada signaled for the plan in February, but has yet to release any of the program’s details.

A spokesman for Canadian Immigration Minister Chris Alexander said details governing the new venture capital fund are still being finalized and would be unveiled in due course. He declined to elaborate on specific features of the fund.

    Under the new program, investors aren’t guaranteed a return from their investment and could face losses depending on the performance of the VC fund’s investments.

    The new program comes as VC fundraising declined 29% year-to-date in the third quarter, according to Canadian Venture Capital and Private Equity Association.

Ottawa has encouraged venture-capital investment as way of generating innovation, skilled-job creation and long-term economic growth. The government has earmarked C$400 million for existing and new venture-capital funds as a way to kick-start private money flows into this style of funding, which typically takes bets on early stage or startup companies. Ottawa also wants the private sector to commit two dollars for every dollar it allocates to VC funding.

Other Western governments have offered residency or passports in exchange for immigrant investment. Under one U.K. scheme, anyone with the intention and means to invest GBP2 million in the country can get a visa. In the past, European countries, including Portugal, Spain, Greece and Cyprus, have allowed investors a residency permit for buying as little as EUR250,000 ($340,950) of real estate.

    Last month, Australia offered a faster 12-month pathway to permanent residency for people investing A$15 million ($13.2 million) or more into the country. The Premium Investor Visa program targets investment in higher-risk infrastructure priorities rather than lower-risk sovereign bonds and managed funds. The new visas build on an existing plan—Significant Investor Visas—offering residency in four years for people investing at least A$5 million. As on Nov 24, China accounted for 90.8% of applications, and 87.7 % of visas granted.

—Rob Taylor and Paul Vieira contributed