The new fund will focus on investing in growing small businesses, start-ups and spin-outs, in digital and life sciences, clean technology and advanced manufacturing.
The Department for Business, Innovation and Skills with the Department of Energy and Climate Change and the Department of Health will invest £150m alongside private sector investment on an equal basis known as pari-passu.
The Government believes that this could leverage enough private investment to build a fund of up to £1bn over the next 10 years.
The fund will operate on a fund of funds structure and will invest in a small number of specialist technology funds, providing a market return to both private sector investors and the Government.
Prime Minister Gordon Brown says: “This fund will help build Britain’s future by investing in key sectors. It will provide crucial support for our most promising start-ups and existing small companies just when they need it most.
“Venture capital finance is the lifeblood of innovation and crucial to ensuring the commercialisation of the discoveries coming out of our research base. The fund will boost future UK competitiveness.”