The London Regional Venture Capital Fund is sponsored by the London Development Agency, operated by venture capitalists and will be invested in fast-growing businesses based in Greater London.

The Capital Fund will make initial venture capital investments of up to £250,000 with follow-on investments up to a further £250,000 in companies at all stages of their development over the next five years. So far, Regional Venture Capital Funds have raised over £200 miliion across seven English regions and the new London fund will further help the capital's entrepreneurs.

Launching the fund, Griffiths said: 'The Capital Fund will make a real difference to small and medium sized firms in London hoping to access finance. I am delighted that this fund has raised £50m which makes it the largest regional fund in the country. The Capital Fund is an important element in supporting entrepreneurs and will encourage more would-be investors to recognise the benefits of investing in London's SMEs'.

The fund is a key element in the Government's Regional Development Funds initiative aimed at stimulating private sector investment at the smaller end of the venture capital market.

Whilst there is no shortage of venture capital in the UK to fund major deals, there are only a handful of funds willing and able to invest under £1m. This is the so-called 'equity gap'.

Griffiths added: 'DTI backing of £15m combined with £8m of support from the European Investment Fund (a branch of the European Investment bank) has helped to lever in £27m of private sector support. The Capital Fund can help plug the 'equity gap' and give more companies access to small-scale risk capital to help them grow.' The Capital Fund is operated by venture capitalists, London Fund Managers (LFM), a division of Yorkshire Fund Managers Limited, and sponsored by the London Development Agency (LDA). Investors in the fund include a range of banks, among them Barclays, pension funds and the Department of Trade and Industry's Small Business Service (SBS).