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In knowledge-based economies, economic growth and job creation increasingly depend upon successful innovation, meaning that the results of research and development (R&D) must be effectively translated into commercial outcomes. Access to finance is seen as a key factor in this process of innovation.

Venture capital, as a specific type of finance that has been developed to fund high-risk projects, has an important role to play in this connection. Venture capital is crucial to the innovation process. For a variety of reasons, it is very difficult for large companies to undertake high-risk innovative projects. Such projects have the greatest chance of success if they are undertaken in small technology-based firms. Venture capitalists are willing and able, through their financial instruments, to invest in such high-risk innovative projects. This is confirmed by the evidence that technological revolutions which have resulted in the transformation of industries have been led by venture capital-backed firms; for example, the firms that have pioneered each new generation of computer technology (PCs, personal computers, software, etc.) have been financed by venture capital.