The Government has announced the creation of one of Europe’s largest technology funds to invest in promising small businesses, start-ups and spin-out companies.

The UK Innovation Investment Fund will be kick-started by a cornerstone investment of £150 million by the Government and it is hoped that the fund will grow to £1 billion over the next 10 years through private investment. Business Secretary Lord Mandelson described the fund as “a challenge to UK venture capitalists to follow the Government’s lead in backing British entrepreneurs.”

The new fund will invest in specialist technology funds with the track record and expertise to make direct investments, rather than investing directly in technology businesses itself. The fund is expected to invest heavily in large funds with a strong investment record, rather than supporting the smaller early stage seed and challenge funds.

Although some VCs have welcomed the announcement, others are concerned that it is just another headline grabbing initiative that, in reality, will be of little help to those that need it the most. Additionally, as a fund manager has yet to be appointed, it is likely to be some time before the first investments are made.