Venture capital (VC) plays a pivotal role in funding the growth of innovative start-ups and SMEs, which are important drivers of productivity growth and job creation. This chapter presents recent trends in VC markets and compares the approaches to government VC policies across a range of Scoreboard countries. The report shows that VC investment volumes have increased considerably over the last 15 years, driven by historically low interest rates and stronger demand from start-ups. Government interventions have also expanded and evolved, shifting towards indirect investments and more active support for business scale-ups. In recent years, many governments have used VC policies to steer investment towards strategic sectors and technologies, such as green-tech, deep-tech and defence. They are also seeking to address regional concentration and improve access to VC for women-owned firms. In parallel, public development banks and other government investors are stepping up efforts to mobilise a broader set of investors, including institutional investors, retail investors and family offices.
Financing SMEs and Entrepreneurs 2026
Abstract
Alternative sources of finance play a pivotal role in the funding mix for start-ups and SMEs. Venture capital (VC) in particular is especially important for innovative start-ups, whose business models are more likely to rely on intangible assets, which are difficult to use as collateral, and whose growth needs are ill-suited for bank financing. Beyond capital, VC investors also typically bring managerial expertise, industry networks and strategic guidance that help young businesses refine their business models, professionalise their operations, and scale1. This combination of financing and non-financial support makes VC especially well-suited to firms pursuing disruptive innovations with uncertain returns, which are often ill-served by traditional debt markets. Although these firms are a small fraction of the business population, they are a major source of productivity growth and job creation, making VC a key enabler of economic growth. However, market failures such as information asymmetries, valuation challenges on intangible assets, geographic and demographic concentration in VC markets result in inefficiencies in the allocation of VC to innovative SMEs. In response, governments have taken actions to support the development of VC markets and access by SMEs, in line with the OECD Recommendation on SME Financing.
The VC industry has experienced remarkable growth over the past 15 years, propelled by expansive monetary policy and increased participation of institutional investors and governments in VC markets. On the demand side, the growing number of start-ups based on intangible assets, especially in information and technology sectors, has also been an important driver of VC growth.
However, in recent years, global VC markets have experienced notable volatility. VC edged up in 2024 after declining by 34% in 2023 and by 19% in 2022 (OECD, 2025[1]). In early 2025, VC declined as a result of geopolitical and trade concerns; however, it rebounded mid-year as financing conditions improved, although the rebound is largely driven by AI (see Chapter 1). At the same time, the tightening of credit markets has made it more difficult for SMEs to secure the external financing they need to grow and remain competitive. As a result, VC funding has become even more critical for innovative SMEs, particularly those in emerging technologies or knowledge-intensive strategic sectors such as green tech and deep tech. Without adequate financing, these firms risk stalling or relocating their activities, weakening national and local innovation systems and limiting job creation.
In this context, governments have played an important role in market development and stabilisation. Because public VC investment programmes are mandated to generate returns for governments, they are often sector-neutral and tend to reflect market trends. This also results from government VC investments almost always being matched by private VC investments.
In recent years however, national governments have been increasingly leveraging some of their VC activities to steer investments toward underserved regions and entrepreneurial segments and new strategic sectors and technologies, such as green-tech, deep-tech and defence technologies. Additionally, public development banks and other government investors are stepping up efforts to mobilise a broad set of investors, including institutional investors, retail investors and family offices, to increase the pool of patient capital much needed for these emerging strategic technologies.
This chapter examines recent developments and trends in the VC industry and government-backed VC programmes. It first provides an overview of global market trends in VC markets in the last decade Then, it explores recent venture capital policy initiatives, providing a better understanding of developments in the design of VC programmes and offering insights on how to develop robust VC markets.
The chapter builds on the 2025 OECD policy paper on Benchmarking government support for venture capital: A comparative analysis2. It also complements the reports produced on venture capital by the OECD Committee on Industry, Innovation and Entrepreneurship.
After a period of consistent growth, in recent years the VC industry has experienced significant volatility
Venture capital (VC) has grown remarkably in the last fifteen years. In 2020, USD 336 billion were invested in 26 800 start-ups, compared with USD 31 billion in 3 500 start-ups in 2006. Year 2021 was a particularly exceptional year, with USD 669 billion invested in 30 500 start-ups (Crunchbase, 2022[2]). On the supply side, expansive monetary policies, including historically low interest rates for a long period of time, led to an increased appetite for riskier investments such as VC investments. This resulted in large institutional investors such as pension funds, mutual funds and sovereign wealth funds entering the VC asset class, thereby increasing liquidity in VC markets (Bellavitis and Matanova, 2017[3]) (Lerner and Nanda, 2020[4]). Regulatory reforms allowing institutional investors to invest part of their capital in VC assets have been instrumental to this trend. On the demand side, the growing number of start-ups built on intangible assets has also been an important driver (Morgan Stanley, 2020[5]) (Haskel and Westlake, 2018[6]), as equity finance is particularly suited for this business model. In fact, over the past 25 years, the share of investments in intangible assets out of the total reached 29% in the United States and across 10 European countries (Mckinsey, 2021[7])
However, since the COVID-19 pandemic, the VC industry has experienced several fluctuations due to a series of macroeconomic disruptions. Figure 2.1 shows the evolution over 2015-25 of global VC deal activity and global deal count by quarter. Following the initial shock of the COVID-19 pandemic, VC investments experienced a sharp increase in 2021, with levels reaching a record high of USD 200 billion towards the last two quarters of the year. This expansion was fuelled by unprecedented liquidity from low interest rates, quantitative easing and government support, which increased risk appetite and drew in large investors such as pension and sovereign funds (OECD, 2023[8]). The increase in liquidity in VC markets, along with a larger supply, contributed to marked increases in start-up valuations3.
However, 2022 marked a reversal of this trend. Inflationary pressures, followed by an increase in interest rates worldwide, redirected investors back into fixed-return assets (e.g. bonds) and, as a consequence, reduced liquidity in VC markets. In 2023, these new conditions affected start-up valuations and the returns of VC funds (EIF, 2023[9]) (Crunchbase, 2024[10]). Despite this volatility, the average fund size in major VC markets (the US and Europe) has increased steadily since 20154 (EIF, 2024[11]).
In 2024, with the continuation of a restrictive monetary policy environment and a cautious investment environment, VC investments grew only in the last quarter, mostly driven by a surge of investments towards AI (See equity financing section in Chapter 1). The decline of VC investments experienced in non-AI companies suggests a reset in start-up valuations, with smaller average deal sizes being used to fund start-ups5. Declining valuations also impacted the exit environment, with fewer firms deciding to go public. The year 2025 began with VC investment levels similar to Q4 2024, but Q2 saw renewed volatility due to geopolitical uncertainty and concerns about the effect of tariffs and trade tensions on firms.
Deal value in USD billion (left axis), deal count (right axis)
Note: Data as of June 30, 2025
Source: Q2 2025 Global VC first look, (Pitchbook, 2025[12])
VC markets have been largely focused on start-up and late-stage investments
The surge experienced by VC markets over the last 15 years has been driven by growth in start-up and late-stage investments, with Series B6, C7 and mega rounds driving the surge. Between 2010 and 2020, Series B investment volumes quadrupled, Series C expanded more than eightfold, and mega rounds increased more than 28 times (Dealroom, 2024[13]). The unprecedented liquidity of 2020-2021 accelerated this dynamic further, with late-stage companies becoming the primary recipients of investments8. As a result, start-up valuations soared, with 2021 seeing more than 10 new start-ups becoming unicorns (valuations above USD 1 billion) every week (Crunchbase, 2022[14]) and closing sizable deals.
This sharp increase was reversed in 2022 and 2023 with total volumes in late-stage deals shrinking significantly, reflecting the change in macroeconomic conditions, a growing caution from investors and a general market correction. The significant decline in exits of these late-stage companies, especially through Initial Public Offerings (IPOs), also impacted investor confidence, as it resulted in fewer opportunities to generate gains from investments. This caution extended into 2024 with exit activity remaining subdued and resulting in an accumulation of start-ups in the private markets (Pitchbook, 2025[15]). In Q1 2025, rounds exceeding USD 250 million gained momentum, but this was largely driven by substantial funding directed toward a handful of well-established AI companies.
Other early stages (seed and series A) have also grown in the last fifteen years, although not at the pace of late-stage investments. This is explained by smaller investment tickets allocated to this stage, as well as the higher risk associated with the seed stage. Early-stage investments also experienced a lagged increase after the high liquidity window in 2021. In mid-2022, when late-stage investment started to decline, Series A reached the highest investment volumes. However, from the second half of 2022 onwards, investments have progressively declined. In 2024 and the first quarter of 2025, quarterly volumes remained below USD 9 million; nonetheless, they were still higher than before the pandemic.
USD billion
Note: Dealroom collects venture capital data using AI algorithms that extract information from public sources such as news articles, company filings, registries, job boards, and analytics platforms. It classifies funding rounds in two ways: by the Announced Round Type, which reflects how companies publicly label their rounds, and by the Amount-Based Funding Type, which groups rounds based on their size for visualisation purposes. Seed rounds typically occur within two years of a startup’s founding and range from USD 1–4 million. Series A marks the start of scaling operations, while Series B (USD 15–40 million) supports market expansion and revenue growth. Series C (USD 40–100 million) funds major growth initiatives. Mega and Mega+ rounds (Series D to I), which often exceed hundreds of millions, are used by mature companies for aggressive expansion, acquisitions, or preparing for an IPO (Dealroom, 2025[16]) (Dealroom, 2025[17]).
Source: (Dealroom, 2025[18]).
The ICT sector has been an important focus of VC activity, driven by significant investments in AI in recent years
Since 2010, the ICT sector has consistently attracted the largest share of global VC investment. ICT volumes expanded from less than USD 200 billion in 2015 to a record USD 721 billion in 2021, accounting for the majority of global VC volume. The long-term focus of VC investments in ICT is explained by the important focus of VC funds on generating returns within fixed investment horizons for which they target fast-growing companies (35 to 40% internal rate of return), with large market potential (scalable) and sustainable competitive advantage (innovative or disruptive business plans) (Casson et al., 2009[19]) (OECD, 2015[20]) (Lerner and Nanda, 2020[4]). Companies in the ICT sector exhibit these characteristics; for example, they are easier or faster to commercialize and have relatively low demand uncertainty, particularly in areas like software (Lerner and Nanda, 2020[4]). In addition, VC funds operate by mimicry, preferring to reduce risk by replicating past successes, with a specific company profile/sector often being targeted (Asterion, 2025[21]).
Financial technology as well as healthcare and life sciences have also grown significantly since 2010. Financial technology grew more than sevenfold while healthcare and life sciences expanded more than fivefold over the same period. From 2022 onwards, most sectors experienced a sharp decline as investor sentiment decreased and dealmaking adjusted to reflect tighter monetary conditions. ICT funding fell by over one-third in 2022, with a further decline in 2023 before partially recovering in 2024. A similar pattern was seen in financial technology and healthcare. In 2025, apart from ICT, only healthcare has recovered, while investment in sustainability, financial technology and manufacturing remain below 2021 volumes.
The share of ICT in total VC investments has increased since 2022. As of H2 2025, ICT has accounted for 72.5% of all VC investments (up from 47.3% in 2022). This concentration is mainly driven by significant investments in AI which, as of H2 2025, account for more than half of VC investment volumes.
USD billion
Note: Data as of June 30, 2025
Source: Q2 2025 Global VC first look, (Pitchbook, 2025[12])
The role of governments in VC markets has grown in the last fifteen years
VC is an important source of financing for young innovative firms, which are a major source of radical innovation and a driver of economic growth9, yet the allocation of VC is not often efficient because of well-documented market failures. This includes persistent information asymmetries, high transaction costs in the investment process and mismatches in the returns and timeframe expectations between investors and entrepreneurs in breakthrough technologies and models with high societal impact. The VC industry also tends to be spatially and demographically concentrated.
To mitigate market failures in the VC industry, governments have taken on an increasingly active role in fostering its development. The objectives of government participation vary significantly depending on the level of development of the VC market and the strategic priorities of the government. For example, government support in VC can have the objective to build or catalyse a market. Market catalysation occurs in countries where there is significant scope for increasing private sector involvement, and government participation becomes instrumental in “signalling” to investors where to invest, crowding-in private capital. For example, at the European level, VC investment commitments by government agencies grew sixfold between 2007 and 202410 , thus playing a crucial role as catalyst for the VC industry. In the case of smaller countries, which tend to have fewer private investors, the role of government is to enhance the market, and the weight of the public support in VC investment activity can be even larger. For example, in Finland, the public sector accounted for 30% of VC domestic fundraising in 2022, up from an average of 23% in the period 2019-2021 (Finnish Venture Capital Association, 2022[22]). Government participation in VC can also have the objective of structuring the market and fostering best practices.
Government participation in the VC industry tends to increase during periods of high volatility. The VC industry tends to be cyclical, with macroeconomic disruptions generating fluctuations in the VC markets. Such volatility can affect innovation, as VC investors prefer to conserve capital or shift funding towards less innovative firms that are closer to profitability (Howell et al., 2020[23]).
In this context, government involvement in VC can play a countercyclical role, contributing to market stabilisation and limiting the reduction in the availability of capital for innovation. In the United States, where government participation tends to be small, the share of deals with government participation increased to 8.1% in 2023 (from 4.8% in 2022) (Pitchbook, 2024[24]). In Europe, government participation in VC increased in 2023 when private VC investment volumes declined substantially in response to high interest rates and investor caution11. In 2024, as participation from private investors increased slightly, government participation declined.
EUR million
Note: Institutional investors category includes pension funds and insurance companies, asset managers include family offices, fund-of-funds and other asset managers including PE houses other than fund-of-funds, the “other” category includes capital markets, foundations, academic institutions, sovereign wealth funds and private individuals. Data labels represent the share of VC commitments by type of investor over the total annual VC commitments.
Source: (Invest Europe, 2024[25])
Government VC investments are often channelled through public development banks
In many countries, public development banks (PDBs) are the primary vehicles for government participation in the VC market, often serving as the most active public investor. The growing role of PDB is evidenced by increasing investment commitments and assets under management (AUM). Many of these public financial institutions have set up specific subsidiaries to deal with the growing investment flow and to separate VC activities from debt financing programmes. Some examples include Kreditanstalt für Wiederaufbau (KfW) Capital in Germany (indirect fund-of-funds investor), the British Business Bank and its subsidiaries in the UK, Bpifrance Investissement in France, Export and Investment Fund (EIFO) in Denmark, and (Business Development Bank of Canada) BDC Capital in Canada.
Nonetheless, some countries rely on alternative institutional approaches to VC policies. In Finland, the main government investor is TESI (Finnish Industry Investment Ltd), which is a state-owned investment company specialised in equity investments. Sweden has two main state-owned investment/venture capital companies: Saminvest, mostly active in the support of private VC funds (indirect investment), and Almi Invest, mostly active in direct equity participations in Swedish start-ups. Germany also has more than one single main government VC institution. Indirect investments by KfW Capital are complemented by the High-Tech Grunderfonds (public-private investment company12 investing directly in start-ups). In addition, the DeepTech & Climate Fund (DTCF) complements the HTGF and KfW Capital by co-investing directly in deep-tech companies. In the US, government-backed equity programmes remain relatively small, with the Small Business Administration managing the SBIC and SBIR programmes. In the Netherlands, Invest-NL, a state-owned development and investment institution under the Ministry of Finance, acts as the national promotional institution, providing both direct and indirect VC support.
Indirect investment has become increasingly prominent in VC policies
In recent years, government commitments into private VC funds or fund-of-funds have gained prominence across countries. This reflects a broader policy shift towards leveraging private sector expertise and capital. Germany provides a case in point. Through the EIF-ERP facility13, the German Government has invested in private VC funds since 2004. Over the years, the funding of this facility has progressively increased, reaching a total capacity of EUR 4.6 billion in 2023 (EIF, 2023[26]). In addition, KfW Capital, established in 2018, only invests through participation in private VC funds, whereas the High-Tech Gründerfonds (HTGFs), which date back to 2005, invest directly in start-ups. While the AUM of the HTGFs are still larger than those of KfW Capital (EUR 2.3 billion vs. EUR 0.9 billion), the new Future Fund tilt further government VC policies towards indirect investments. In the UK, venture capital policies have traditionally been more inclined to indirect investments, since the creation of the Enterprise Capital Fund in 2006. The preference for indirect investments was further strengthened after the 2017 Patient Capital Review, which underscored the need to enhance scale-up finance in the United Kingdom (HM Treasury, 2017[27]). The main programmes of the two subsidiaries of BBB, BPC and BBI, all adopt an indirect approach to government VC investment.
Nordic countries provide additional examples of this trend. In Finland, TESI’s AUM from direct investment accounted for between 20-23% of the total between 2018 and 2022, with the rest coming from participation in private VC funds and fund-of-funds. In Denmark, the indirect-direct investment ratio of EIFO was 2:1 in 2024 (DNK 1.6 billion vs. DNK 0.8 billion) (EIFO, 2024[28]). In the case of Sweden, in 2014, an evaluation of the National Audit Office concluded that government VC direct investment policies were not effective due to an excessive fragmentation of government VC funds (Tillvaxtanalys, 2013[29]). As a result, the main direct government investment programmes were closed.
The rise in VC indirect investments has been accompanied by a rise in growth-stage investments
The rise in indirect investments has been accompanied by an increase of growth-stage investments by public VC funds, which reflects broader trends in VC markets and an effort to fill funding gaps at this stage. Growth-stage VC investments typically involve larger investment tickets than early-stage investments, which means that the size of the funding round is more easily reached when different investors partner together. In this respect, public VC funds can have an important leveraging effect, helping private VC funds to meet the required investment targets while reducing exposure to single large investments.
The rationale behind public intervention in growth-stage investments is slightly different from the one in early-stage. Early-stage public investment aims to facilitate the emergence and growth of newer, younger start-ups while also supporting their commercialization. These early investments come with longer time horizons and greater risks due to the uncertainty and lack of data regarding the financial performance of these companies. This is different from growth equity, which typically focuses on scaling companies that already have significant revenues.
This trend in VC policy has been identified more prominently in European countries. For example, in the UK, British Patient Capital (BPC)14, a subsidiary of BBB, allocates two-thirds of its commitments to growth-oriented VC funds and one-third to early-stage funds, with 26 out of 51 BPC-backed funds targeting venture growth (British Business Bank, 2023[30]) (British Business Bank, 2021[31]). In Germany, new VC programmes have also increasingly focused on the growth stage. While the High-Tech Gründerfonds (2007) targeted early-stage firms, newer programmes address later stages. The GFF-EIF Growth Facility, part of the EUR 10 billion Future Fund, started in 2021 with EUR 3.5 billion to support growth and late-stage firms. In addition, the ERP/Future Fund Growth Facility established by KfW contributes to facilitate more frequent and larger financing rounds for start-ups. Similarly, the Venture Tech Growth Financing Programme, which is also funded by the umbrella Future Fund, fosters the growth phase of innovative companies through bridge loans and post-IPO debt loans. In France, Bpifrance has expanded the growth capital segment (capital croissance) to accelerate start-up and scale-up. Between 2013 and 2022, Bpifrance subscribed to 33 growth funds, averaging EUR 375 million, more than twice the size of other VC funds in its portfolio (EUR 157 million). As a result, fundraising campaigns that exceeded EUR 20 million increased from 3 in 2013 to more than 100 in 2022.
Despite the increasing importance of indirect investments in VC, in some countries direct investments still play an important role
While many countries have increasingly shifted toward indirect investment approaches, direct investments continue to play a significant role in some. In France, Bpifrance’s portfolio remains almost evenly split, with 45% in direct investments and 55% in fund-of-funds. Large direct funds, such as the Large Venture Fund (EUR 1.75 billion), focused on growth-stage firms, has been crucial to supporting 11 of France’s 31 tech unicorns in 2022. At the same time, indirect investments have grown substantially, with commitments to new French VC funds rising 3.4 times between 2013 and 2022. In Canada, BDC Capital divides its VC activity between direct (CAD 2 billion) and indirect (CAD 1.2 billion) investments. Despite this balance, 62% of its AUM in 2025 stemmed from direct investments, which have consistently represented the majority since 2011. Alongside these activities, BDC also manages federal VC programmes that prioritise indirect investments.
In the United States, where government VC investments are limited, government-backed VC mostly takes the form of direct investment, possibly because the United States does not have a federal public development bank, and the few existing federal VC initiatives are often mixed with debt financing instruments. For example, the Small Business Investment Companies (SBICs), which are regulated by the federal SME agency (Small Business Administration, SBA), offer both debt and equity finance instruments; in 2013, equity and semi-equity instruments (e.g. convertible debt) represented about 40% of SBIC financing (SBA, 2014[32]). SBICs are privately-owned companies which act as investment funds. As of September 2024, there were 318 of them in the United States, with total regulatory capital of USD 25 billion (SBIA, 2025[33])15.
Government VC policies seek to diversify the investor base
Mobilising institutional investors
Institutional investors (e.g. pension funds, insurance companies, sovereign funds, etc.) have contributed to growing volumes of VC investments over the last decade. Especially in the case of pension funds, changes in the regulatory framework have enabled a larger participation of these entities in VC markets. For example, in the US, changes in the Employment Retirement Income Security Act (ERISA) in the 1980s allowed fund managers to diversify their portfolio and allocate a small fraction of a corporate pension portfolio to risky investments. Although the allocations of corporate pension funds in VCs were initially small, even a modest allocation of such a large pool of investors led to a rapid growth of the VC industry (Lerner and Nanda, 2020[4]).
In addition, through PDBs, governments have played an important signalling function, by providing capital and by attracting broader participation of other types of investors by being anchor investors (OECD, 2025[34]). As a result, PDBs play a key role in expanding financing options for start-ups, particularly in underdeveloped VC markets where individual funds may be too small to attract institutional investors. By establishing fund-of-funds and managing due diligence, PDBs enable institutional investors to engage in VC at a larger scale. Over time, this helps institutional investors gain the experience and confidence needed to eventually invest directly in VC funds (Arnold, Claveres and Frie, 2024[35]).
In recent years, several countries have implemented policy initiatives aimed at increasing the participation of pension funds in the VC market, most notably in Nordic countries. In Denmark, the fund-of-funds Danish Growth Capital (III) reached in 2023 DKK 3 billion in assets16 and invested in 12 VC funds, with the share of pension fund contributions rising from 25% in its first cycle to 33% in the second. In the case of the Danish Growth Capital, it has been reported that without government backing, it would have been unlikely for pension funds to undertake early-stage VC investments (Kimmo, 2023[36]). In May 2025, the fourth iteration of the Danish Growth Capital was launched, with administration delegated from EIFO to a private commercial bank, and the fund-of-funds operating fully on commercial terms (Danske Bank, 2025[37]). In Finland, the public investment company TESI launched the KRR fund-of-funds programme to encourage pension fund investment in Finnish scale-ups within a controlled-risk framework. Between 2008 and 2023, nearly EUR 600 million was invested through this mechanism. In Sweden, Almi Invest also partners with institutional investors, supporting around 200 new and follow-on investments annually, further integrating pension funds into the VC ecosystem.
Other European governments have recently launched comprehensive plans to encourage institutional investments in VC. In Germany, the WIN (Growth and Innovation Capital for Germany) Initiative launched in 2024 includes a 10-point action plan aimed at strengthening the ecosystem for growth and innovation capital. One key measure is the amendment of the Investment Ordinance, which raises the quota for risk capital investments from 35% to 40%, making it easier for small insurers and pension funds to invest in venture capital. The Investment Ordinance came into force in February 2025. Through the Insurance Supervision Act, the cover requirements for pension funds will be relaxed, which would enable flexible capital investment (KfW, 2024[38]). In France, the Tibi Initiative, which is already in its second phase, aims to increase the financing capacity of technology companies (in early and late stage) by mobilizing the savings of institutional investors. The initiative was launched in 2019 and has increased from 21 investors initially to 30 at the launch of Phase 2 in June 2023 and to 35 investors in May 2024. As of H2 2024, more than 15 venture capital funds had applied to manage over EUR 1 billion each (Direction générale du Trésor, 2024[39]). In the UK, in Q2 2025, the BBB received regulatory approval from the Financial Conduct Authority to deliver the British Growth Partnership, which aims to unlock capital from UK pension funds17 and other institutional investors to invest in UK VC with the support of government anchor investment (UK HM Treasury, 2025[40]).
However, the effectiveness of the supply of private capital to the VC industry often depends on the broader institutional context. In particular, the role and size of private pension funds vary significantly across countries depending on the structure of the national pension system. In economies with largely public pension systems, freeing private pension funds to invest in VC may have a limited impact on the overall volume of funding available (Berger, Criscuolo and Dechezleprêtre, 2025[41]). In such a context, governments often have a larger direct participation in VC markets through Government VC Funds. For example, in France, where the pension system is mainly public, Bpifrance’s direct investments account for 45% of the total, the rest being fund-of-funds (55%) (OECD, 2025[34]). In Germany, the WIN initiative has commissioned a study to explore options to increase investments from public institutional investors, which will include an inventory of relevant public funds and their VC investments as well as opportunities to mobilise more VC investments through public funds (KfW, 2024[38]).
Mobilising a broader range of investors, including retail investors, family offices, and foundations
To develop dynamic venture capital ecosystems, governments are also working to broadening the investor base in the VC asset class in order to contribute to deeper, more liquid VC markets with varied funding sources. Depending on the design of the structures in which a broader set of investors participates, governments may align new pools of capital with strategic priorities or with current investment gaps (e.g. long-term patient capital).
For example, the revised European Long-Term Investment Fund (ELTIF) 2.018, introduced in 2024, aims to “democratise” access to private markets, including venture capital, for retail investors. The revised ELTIF removes the previous minimum investment threshold of EUR 10 000 and the 10% limit on aggregate investment, with the objective of easing access for retail investors (Official Journal of the European Union, 2023[42]). In the UK, the Long-Term Asset Funds (LTAFs) aim to increase liquidity in VC and growth equity. While the structure initially focused on professional investors, the Financial Conduct Authority has recently introduced rules to broaden distribution to certain retail and pension customers subject to specific protections. In 2024, wider access was put in place by allowing UK Non-UCITS Retail Schemes (NURS) to invest more easily in LTAFs, effectively creating another indirect channel for retail investors and savers to invest in illiquid assets including VC (KPMG, 2025[43]).
In other countries, policies aim to broaden the investor base for venture capital by strengthening financial literacy, cultivating an investment culture and actively introducing new investor groups to growth and innovation finance. Recognising that meaningful participation in VC requires both expertise and confidence, the German federal government and KfW Capital are expanding programmes under the WIN Initiative that familiarise potential investors with the asset class and transfer practical know-how from experienced market participants. KfW Capital’s VC Academy is an example of such initiatives, and a new training programme for Potential Limited Partners is being introduced in 2025. In addition, the “Family Office Initiative” and “Foundation Round Table” formats established by the federal government make a significant contribution to attracting further investor groups to start-up financing in Germany. Participants in the Family Office Initiative have been involved in the Wachstumsfonds and the Start-up Factories. The Foundation Round Table, with the participation of KfW Capital, regularly organises discussions on how to attract investments from foundations in the VC market (KfW, 2024[38]).
Government VC policies are becoming increasingly targeted, aligning with specific policy goals
Government VC policies aim to bridge subnational disparities
VC tends to be geographically concentrated, given that the VC industry tends to thrive when its key players19 are clustered together (Arnold, Claveres and Frie, 2024[35]). Moreover, VC investors prefer to locate in areas with a history of thriving entrepreneurial ecosystems and proximity to portfolio companies. As such, the location preference and patterns of successful entrepreneurs and investors tend to be mutually reinforced (Berger, Criscuolo and Dechezleprêtre, 2025[41]). This results in subnational regions with developing entrepreneurial ecosystems but lacking a significant number of VC investors or other key actors in the VC industry, encountering deficiencies in VC availability. By way of example, in 61% of UK-based equity deals, investors had their office within a one-hour travel distance from the invested company, while in an additional 21% of deals the distance was two hours (British Business Bank, 2021[44]). Similarly, at the EU level, more than 80% of VC investments are concentrated in 20 cities (EIF, 2016[45]).
Governments and subnational agencies can address the geographical concentration of VC by boosting supply through the establishment of local investment funds and providing anchor investments to encourage local private investor participation. They can also foster demand by increasing awareness of VC availability and supporting regional business angels, whose involvement extends beyond the provision of finance.
Government VC policies have sought to address the concentration of VC activity by channelling risk capital to peripheral regions, with a view to diversifying the distribution of equity finance across the country. For example, in the United Kingdom, regional targeting has long been a key feature of VC policy. Prior to the establishment of the British Business Bank (BBB) in 2014, 60% of all public VC commitments were made to regionally constrained funds. The BBB launched targeted regional funds for Northern England, the Midlands, and other devolved nations, with new commitments reaching GBP 1.6 billion in the 2022 Spending Review to establish the next generation of regional funds. As of 2024, the BBB is actively rolling out these funds which have increased significantly their activity from two matched deals in 2023 to 48 deals in 2024 (British Business Bank, 2025[46]).
In addition, the BBB also recognises the crucial role that Angel investors play in strengthening regional and local ecosystems. Beyond the finance they provide, they attract additional co-investors and grant funding, offer mentorship, connect entrepreneurs with talent and customers, and can significantly improve a start-up’s chances of securing later VC rounds. Considering the high geographical concentration of Angels, the BBB created in 2018 the Regional Angels Programme to narrow geographic imbalances in early‑stage VC finance and strengthen local start‑up ecosystems. As of 2025, Angels’ activities in the UK were less concentrated compared to the UK equity market (British Business Bank, 2025[46]).
In France, Bpifrance manages regional and interregional funds, seeking to combine financial profitability with local economic development goals. These funds apply a generalist and, often, interregional approach to grow the market depth and quality of investment opportunities, which is inevitably restrained if a strict regional focus is used. More specifically, Bpifrance’s indirect investments are organised around three clusters: regional funds, innovation funds and capital development funds. Most of the recent growth in indirect investments has come from the innovation and regional funds, with regional funds showing a 50% increase between the period 2015-2019 and 2020-2024 (Bpifrance, 2025[47]).
In other countries where central VC policy is not primarily regionally oriented, subnational governments are increasingly launching their own regional VC initiatives. These subnational programmes often complement national schemes and reflect local innovation strengths and funding gaps. For example, in Germany, while federal institutions like KfW Capital and the HTGF do not apply a regional development lens in their VC policy, regional promotional banks, especially in the most developed Länder, sometimes operate VC programmes with a closely defined regional mandate. For example, in Bavaria, the state parliament passed a resolution in July 2025 to enable public and private foundations to invest up to 5% of their assets in VC, with the objective to attract more investment into start-ups in the state (Partington, 2025[48]).
In the Netherlands, the regional development agencies (i.e., ROMs for Regionale Ontwikkelingsmaatschappijen) are active in all provinces. They aim to improve access to financing for companies and address market failures in the venture capital market. The ROMs provide capital to startups and scale-ups, support companies in their international growth, attract foreign businesses, and contribute to strengthening regional innovation ecosystems. It has been estimated that as many as 60% of VC-backed Dutch companies receive equity finance from a regional development agency (Netherlands Chamber of Commerce, 2024[49]) (Regionale Ontwikkelingsmaatschappijen, 2023[50]).
Outside Europe, Canada follows a model similar to Germany’s. BDC Capital’s VC activities and the government mandate programmes that BDC delivers have a pan-Canadian approach with VC investments made across Canada. However, many provinces also have VC policies targeted at the regional level. For example, in British Columbia, the BC Renaissance Capital Fund (BCRCF), Alberta Enterprise Corporation (AEC), the Manitoba First Fund, Venture Ontario, Investissement Québec (IQ), New Brunswick Innovation Foundation (NBIF) and Invest Nova Scotia support VC investment in their respective jurisdictions.
Government VC is also focusing on supporting women entrepreneurs, who continue to be underrepresented in the VC industry
The VC industry tends to replicate biases in society, which prevent different segments of the population from participating in the market, either as investors or entrepreneurs. The literature has largely documented the gender imbalances in access to venture capital, which is due in part to the underrepresentation of women among investors and fund managers, as well as in the entrepreneurial ecosystems, with women entrepreneurs representing a low share of businesses operating in STEM sectors (which is the highest recipient of VC investment). Globally, women entrepreneurs are about 63% less likely to secure VC funding compared to men (Guzman and Kacperczyk, 2019[51]), receiving only about 2% of total venture capitalist investments globally (Teare, 2020[52]). Moreover, women who do receive VC investment, only receive about 70% of the funding that men receive on average (Lassébie et al., 2019[53]). In Europe from 2011 to 2021, only one in ten founders and CEOs who received VC were women (EIF, 2022[54]).
Government participation in VC can counteract these disparities by establishing gender or diversity-focused funds or including diversity criteria in fund-of-funds structures, where partner funds need to have a specific share of investments allocated to women or minority entrepreneurs. Specific programmes that support the professionalisation of women, minorities, young investors and the creation of investor networks that have diversity as their core principle can foster a varied base of investor profiles, thereby reducing biases in the industry.
In the UK, between 2022 and 2024, only 6–8% of equity deals went to all-female founding teams, compared to 70–74% for all-male teams. Mixed-gender teams accounted for the remaining 20–22% of deals (British Business Bank, 2025[46]). In the US, in 2024 only USD 36.1 billion was invested in teams with a female founder, out of a total of USD 209 billion (Pitchbook, 2025[55]).
Governments have increased the number of initiatives to address persistent gender imbalances in access to venture capital, which are aimed at increasing the participation of women both as fund recipients and as investors. Box 2.1 shows examples of these initiatives in Canada, Colombia, Germany, Denmark, Sweden and United Kingdom.
Canada: BDC operates the Thrive Platform for Women, which has a budget of CAD 500 million to invest in women-led technology businesses and in women-led VC funds. In addition, the Venture Capital Catalyst Initiative (VCCI) and Renewed-VCCI programmes have also strived to enhance diversity in Canada’s VC ecosystem. For example, the 2021 Renewed-VCCI included a CAD $50 million inclusive growth stream and all recipient fund managers under the programme are required to collect gender and diversity metrics, and implement DEI policies and practices internally, in their portfolios, and across the broader VC ecosystem.
Colombia: The Free and Productive Women Fund (Fondo Mujer Libre y Productiva) launched the She Invest programme (Ella Invierte) in September 2024 to promote female investment and entrepreneurship (Vicepresidencia de Colombia, 2024[56]). The programme offers tools and valuable connections to women investors and entrepreneurs.
Denmark: EIFO has signed a diversity commitment binding the Fund to measure, track and report progress in promoting gender equality through the Fund’s activities (EIFO, 2023[57]).
Germany: KfW Capital also considers the female staffing of partner VC funds in its investment decisions. In addition, the Emerging Manager Facility (EMF) is a new KfW instrument conceived for new and young VC management teams with the aim of enhancing access to VC by underrepresented groups, especially women (KfW, 2023[58]).
Sweden: Saminvest requests that women’s representation in the investment team of partner VC funds is at least 40%, with funds asked to show regular progress on this metric.
United Kingdom: the BBB, through its commitment to the Investing in Women Code (IWC), has increased equity support to women entrepreneurs. Between 2022 and 2024, 30% of BBB’s supported deals were allocated to companies with at least one female founder, a slightly higher share than both the overall equity market (27%) and the broader PE/VC market (26%) (British Business Bank, 2025[46]). The UK example also showcases the importance of the collection of gender-disaggregated data on VC to inform the creation or evaluation of programmes, or identify ways to target existing programmes. The Women Entrepreneurs Finance Initiative, through its WE Finance Code, supports governments in this area (Women Entrepreneurs Finance Initiative, 2022[59])
As a percent
Source: Small Business Equity Tracker (British Business Bank, 2025[46])
Government VC is increasingly focused on strategic sectors
Because government VC investments must generate returns, they are often sector-neutral and tend to reflect broader VC market trends, which is also the consequence of government VC investments always matching private investments. In other words, because government investments tend to match private investments, they are mostly found in those sectors that have traditionally been preferred by private VC funds, such as information technology and life sciences.
There are many examples of sector-neutral government VC policies. The Danish Growth Fund, which was behind VC policies in Denmark before the recent establishment of the Export and Investment Fund (EIFO), has also been sector-blind, with the largest funding directed to IT, health tech, and industrial technologies, as a result of market trends. BDC’s VC investment strategy aims to support undercapitalised innovative industries in Canada, helping Canadian technology innovators build world-class companies. Similarly, the fund-of-funds streams of Venture Capital Catalyst Initiative (VCCI), and its predecessor, Venture Capital Action Plan (VCAP), have had a sector neutral approach, with recipient fund managers investing predominantly in ICT, followed by life sciences and cleantech focussed VC funds, reflecting broader VC investment trends. In Germany, the top recipient sectors of the HTGFs have been healthcare, information technology, fintech, energy and marketing.
However, national governments are increasingly implementing VC programmes to steer investments towards strategic sectors that are not receiving enough risk capital from private VC funds. As VC typically concentrates in sectors with large market potential and relatively low demand uncertainty, innovations with significant positive externalities but long development cycles, such as deep-tech, energy and environmental sustainability, often face difficulties to attract capital. Deep-tech ventures, for example, take on average 25–40% longer between funding stages than other tech firms and face higher risks of failure at each stage (BCG, 2023[60]). The extended timelines and high technological uncertainty discourage many investors seeking quicker returns, resulting in a sub-optimal allocation of capital.
In this context, governments play a crucial role in de-risking investments and mobilising patient capital20. Public participation through long-term or evergreen funds, fund-of-funds, and targeted co-investment schemes can provide the initial anchor investment needed to crowd in private actors. Such interventions are particularly effective in mobilising institutional investors, which have both the capacity for large commitments and a higher tolerance for long investment horizons (Bearhurst, 2021[61]). By absorbing part of the risk and signalling commitment, governments help channel resources into strategic sectors where private VC alone would be insufficient. Box 2.2 provides examples of emerging funds in these sectors.
Deep-Tech Funds
Canada - Deep-Tech Venture Fund (BDC Capital): Launched in 2021, it invests CAD 200 million directly in early-stage deep-tech start-ups (from seed to Series A).
Denmark - Quantum Technology Strategy Fund: Launched in October 2025 and with a target size of EUR 300 million, a dedicated fund with public-private co-investment established through EIFO along with private investors, with the aim of supporting commercialisation in quantum technologies.
France - Bpifrance Deep-Tech Plan: A EUR 2.5 billion plan focused on highly innovative companies, expanding the National Seed Fund and Ecotechnologies II Fund.
Germany - Deep Tech & Climate Fund (DTCF): Launched in 2022, with a EUR 1 billion commitment over 10 years, targeting deep-tech and climate-related innovations.
Spain - Next-Tech Fund: A joint initiative of the national public development bank (ICO) and the Secretary of State for Digitisation and Artificial Intelligence, operating as a fund-of-funds to mobilise EUR 4 billion in deep-tech start-ups and scale-ups.
Green-Tech / Clean-tech Funds
Australia - Clean Energy Innovation Fund: Managed by the Clean Energy Finance Corporation, this evergreen fund had AUD 200 million AUM in 2023, targeting early-stage clean energy technologies.
Canada - BDC Sustainability Venture Fund (CAD 150 million), Cleantech Practice (CAD 600 million), and Climate-tech Fund (CAD 500 million): All focused on clean and climate-friendly technologies.
Denmark - Danish Green Future Fund: Provides quasi-equity (convertible loans) and VC to promote the green transition, with DKK 3.5 billion invested in 2025.
Estonia - Smartcap Green Fund Direct Investment Programme: Launched in 2022 with EUR 20 million for green-tech companies, ranging from seed to Series B.
France - Bpifrance Green Venture Funds: Comprising Ecotechnologies I & II and Ville de Demain, targeting start-ups in renewable energy, intelligent mobility, green chemistry, circular economy, and sustainable agriculture.
Sweden - Almi Invest Green Tech Fund: Established in 2018, it invests in renewable energy, smart grids, biogas, and agri-tech.
Source: Benchmarking government support for venture capital, OECD, 2025.
More recently, government venture capital is being harnessed to support investment in defence technology. This trend is most notable in Europe, which in 2024 experienced an unprecedented 24% year-on-year growth in VC (public and private) allocated to deep-tech defence, security and resilience (close to a fivefold growth over the past six years). This growth is driven by geopolitical developments and a growing demand from governments for these technologies (Dealroom and NATO Innovation Fund, 2025[62]).
In the UK, the BBB manages investments for the National Security Strategic Investment Fund (NSSIF), which co-invests in dual-use technologies21. The NSSIF was created in 2018 and operates through both fund-of-funds and direct co-investments via British Patient Capital and British Technology Investments Ltd. The Fund complements broader government efforts to align VC capital with national security priorities (British Business Bank, 2018[63]) (British Business Bank, 2022[64]).
In France, Bpifrance support companies in the defence and security sectors through two main vehicles. The Fonds Definvest, launched in 2018, is a EUR 100 million equity fund that provides ticket sizes ranging from EUR 500 000 to EUR 10 million for strategic companies within the defence industrial base. The second vehicle is the Fonds Innovation Défense, launched in 2021 with a target size of EUR 400 million. It focuses on scale-ups developing technologies in the defence sector. In July 2025, Bpifrance introduced the European Defence Bond Framework to further expand support for defence-oriented companies, but mainly through debt finance (Bpifrance, 2025[65]).
At the European level, the EU launched a EUR 175 million Defence Equity Facility in 2024, backed by the European Defence Fund. It is implemented by the European Investment Fund, with initial investments already made in VC funds specialising in defence-related technologies. In addition, the EIF signed a Memorandum of Understanding with the NATO Innovation Fund, aimed at broadening the base of private capital actively investing in dual-use and security-relevant technologies (EIF, 2025[66]).
Venture capital plays a critical role in the funding mix for innovative SMEs and start-ups. It increases their chances of success and contributes to productivity growth by combining the provision of capital with non-financial support. This includes access to managerial expertise as well as to industry networks and strategic guidance, based on investors’ deep understanding of the technologies and sectors in which they invest. This combination of financial and non-financial support makes VC especially well-suited to firms pursuing disruptive innovations with uncertain returns, which are often ill-served by traditional debt markets. The OECD Recommendation on SME Financing, the 2022 Updated G20/OECD High-Level Principles on SME Finance (OECD, 2022[67]) and the G20 Global Partnership on Financial Inclusion Action Plan for MSME Financing all underscore the case for enhanced financing diversification, including through venture capital.
In this context, this chapter examined major developments and trends in the VC industry and government-backed VC programmes. It documented the significant expansion of VC investment volumes over the last 15 years, driven by expansionary monetary policy, increased participation from large institutional investors and a growing number of start-ups built on intangible assets. This growth focused on two types of companies ̶ start-up or late-stage ̶ and by investments in the ICT sector. More recently since the COVID-19 pandemic, VC markets have been highly volatile, first surging to record levels in 2021 due to ample liquidity, before contracting sharply in 2022–2023 and stabilising in late 2024, driven by AI investments.
Despite the stabilisation of VC markets, VC flows remain uneven across sectors, regions and specific groups of entrepreneurs such as women. Well documented market failures such as information asymmetries (exacerbated by a concentration of VC funds in a limited number of locations), high transaction costs in investment processes and mismatches in the expectations between investors and entrepreneurs often result in an inefficient allocation of VC, causing sectoral, spatial and demographical concentration. To mitigate these market failures in the VC industry, governments have played an increasingly active role.
This chapter provided an overview of the main ways in which governments have participated in VC markets, often channelling their support through public development banks or public investment agencies. Over the last decade, indirect investments, whereby governments invest in private VC funds, have taken an increasingly prominent role to leverage private sector expertise and capital. The growth in indirect investments has been accompanied by an increase in late-stage investments to promote business scale-ups and an increase in the number of large mid-sized firms in the ecosystem, acknowledging the important role that these firms have in employment creation, innovation and productivity. Nonetheless, direct investments remain common in many countries.
In an effort to increase the capital available in VC, governments are seeking to expand the investor base, including by engaging with institutional investors. In this regard, PDBs, play an important signalling function by providing capital and acting as anchor investors. In addition, through the establishment of fund-of-funds and management of due diligence, PDBs enable institutional investors to engage in VC at a larger scale, helping them gain the experience and confidence needed to eventually invest directly in VC funds.
Government VC policies are often sector-neutral, reflecting the need for government VC entities to generate returns for the government, while complying with its investment policy. Sector neutrality is also the result of governments investing as minority investors with other private investors. Nonetheless, in recent years, some government VC programmes have also sought to funnel VC resources into strategic sectors and technologies, such as clean-tech and deep-tech, and more recently, defence. Government VC policies are also increasingly aimed at mitigating regional and demographical concentration of VC by establishing local investment funds and providing anchor investments in distant regions. They are also establishing women-focused funds or including specific criteria in fund-of-funds structures to increase the allocation of VC to women entrepreneurs.
Looking ahead, the Scoreboard will continue to monitor developments in venture capital for SMEs, as well as exploring other types of equity and quasi-equity finance.
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← 1. For example, VC-backed companies are less likely to fail in the initial years and tend to scale up more quickly than non-VC backed firms. In addition, receiving VC is positively associated with an increase in total factor productivity (Chemmanur, Krishnan and Nandy, 2011[15]).
← 2. https://www.oecd.org/en/publications/benchmarking-government-support-for-venture-capital_81e53985-en.html
← 3. In the US, the median early-stage startup more than doubled its valuation on an annual basis in 2021 and 2022.
← 4. Large average fund sizes are correlated with stronger VC markets with funds having larger capital capabilities to invest.
← 5. In the US, nearly 25% of deals in 2024 were down or flat rounds, which is the greatest percentage in a decade (Pitchbook, 2025[15]).
← 6. Series B refer to companies fundraising between USD 15 and 40 million, usually intended to fund market expansion and revenue growth.
← 7. Series C include companies fundraising between USD 40 and 100 million, usually intended to fund major growth initiatives.
← 8. The unprecedented VC investment flows into late-stage companies also revealed different trends depending on the macro region. In 2021, the scale-up rounds in Europe and the related funding sources were mainly from non-European investors, in particular the US, with non-European participation increasing with the size of the funding round.
← 9. Patents filed by VC-backed firms are of significantly higher quality and economic importance than those in the broader economy (Howell et al., 2020[23]).
← 10. A significant part of public support in Europe comes from EIF’s pan-European level programmes, with many national measures being supported or managed by the EIF.
← 11. In Germany, government participation in VC fundraising accounted for 16% in 2017–2019 (accounting by the main source of VC fundraising) but declined in 2021-2023 in response to the high liquidity window in 2021. Similarly, in France, public participation stood at 23% in 2017–2019 and declined to 19% in 2021–2023. By contrast, in the United Kingdom the public sector played a much smaller role, accounting for 8% of VC fundraising in 2017–2019 and remaining modest at 6% in 2021–2023, with a greater reliance on institutional investors and family offices (KfW, 2020[70]) (KfW, 2025[69]).
← 12. The company has participation from the Federal Ministry of Economic Affairs and Climate Action, KfW, VC investors and industrial companies.
← 13. The ERP-EIF Facility is a partnership between the German Federal Government and the EIF, managed by the EIF, providing venture and growth capital financing with a focus on high-tech early and later stage companies in Germany (EIF, 2023[26]).
← 14. In March 2025, British Patient Capital became the investment arm of the British Business Bank.
← 15. From the inception of the SBIC program to December 31, 2024, SBICs have invested approximately USD 139.2 billion in approximately 198,199 financings to small businesses. In fiscal year 2024, SBICs invested USD 7.26 billion in 1,014 small businesses (SBIA, 2025[33]).
← 16. The combined assets of the three iterations of the Danish Growth Capital amount to DKK 9.4 billion
← 17. Following the Mansion House Accord in May 2025, workplace pension providers will pledge to invest 10% of their workplace portfolios in assets in infrastructure, property and private equity / venture capital by 2030 (UK HM Treasury, 2025[40]).
← 18. ELTIFs were first introduced in 2015 to help facilitate the long-term financing of companies and projects by reducing regulatory obstacles that limited the number of available investors.
← 19. This includes VC investors, Funds, universities, industry partners, start-up incubators and accelerators
← 20. Patient capital refers to investors willing to commit funding over a longer horizon without immediate expectations of financial returns (Bearhurst, 2021[61]).
← 21. Dual-use items are goods, software and technology that can be used for both civilian and military applications (European Commission, 2024[68]).