The British government has begun the process of distributing £325 million to small and medium-sized businesses through its UK Innovation Investment Fund (UKIIF).

Focused on life sciences, digital and advanced manufacturing businesses, the fund is seen as critical to supporting new companies at a time when private venture capital investment has been failing among UK technology companies. Dow Jones figures shows that fund-raising among technology-related firms in Britain has dropped from 210 deals in 2005 to around 90 announced for this year.

The UKIIF is being managed by the European Investment Fund, which is is owned by the European Investment Bank and the European Commission. It matched the UK government’s £100 million contribution to the fund.

Announced by Gordon Brown, the prime minister, in June 2009 as part of the government’s strategy for Building Britain’s Future, it was officially touted as critical in supporting skilled jobs by investing in businesses where there are significant global opportunities. Initially £200 million was set aside for the fund but in January a further £125 million will be invested in low carbon and clean tech sectors. Hermes Private Equity will be running the clean tech part of the fund.

Designed as a fund-of-funds, the initial sums are expected to be distributed to companies over the next five years with a long-term view of rising over £1 billion for the UKIIF over 15 years.