Governments venture into VC

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State-backed venture capital is not a new concept. The British government launched a body 65 years ago to provide long-term funding to small and mid-sized enterprises. Later that body became 3i Group. 3i sought to bridge the financing gap for companies that were too small to raise capital from the public markets, and to which banks were unwilling to provide long-term capital.

Governments today are mounting fresh efforts, with debt markets still tight in the wake of the financial crisis, to plug the equity gap starving smaller enterprises. Many have established funds of funds to funnel cash into venture capital firms. But overcoming hurdles when it comes to raising the capital they are seeking from the private sector is likely to prove crucial to the success of the latest initiatives.

Last month, the Irish government launched a €500m venture capital fund of funds, Innovation Fund Ireland, aimed at boosting the country’s economy. The government has since appointed venture firm DFJ Esprit to manage €30m of that fund.

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