Both will invest in venture capital funds, not directly into companies.

The UKIIF consists of £150 million from the taxpayer plus £175 million in co-investment. The government’s ambition remains to swell the fund to £1 billion by attracting further private investment.

Simon Walker, chief executive of private equity association the BVCA, says the launch of the UKIIF is ‘terrific news for UK venture capital’, adding, ‘This will be much needed investment for the young, innovative businesses which will create jobs and opportunity in our future growth areas.’

Of the total £325 million, £200 million is to be invested in a technology fund-of-funds to be managed by the EIF, which will invest in venture capital funds operating in the digital, life sciences and advanced manufacturing sectors.

The balance of £125 million will be invested by Hermes in low carbon funds.

Jonathan Kestenbaum, chief executive of the National Endowment for Science, Technology and the Arts (NESTA), who had campaigned for the creation of the UKIIF, says that the government was right to appoint ‘credible private sector fund managers’ who will remain at ‘arm’s length’ from government.

Adds Kestenbaum, ‘The key now will be to ensure that the fund is directed towards fledgling companies with high potential for growth.’