The venture capital story is a compelling narrative of bold investment and excess returns.

Often, entrepreneurs and policymakers focus on venture capital in its various forms to energise the economy and transition from the old economic models, based on manufacturing and low-return services, to the knowledge economy built on innovation and technology. So why is it taking so long to find the Holy Grail of vibrant economic activities that create new, well-paid jobs?

Many are fascinated by how today’s technology giants like Apple, Facebook and Google were conceived by intelligent young people like Steve Jobs, Mark Zuckerberg and Sergey Bring. Business schools and some politicians celebrate these entrepreneurs’ successes and often equally extol venture capitalists who backed their start-ups, and share in their glory.

Sadly, the reality looks very different. The venture capital universe is complex and surrounded by myths, as many want to be seen as embracing this magical way of encouraging high-value-added investment that creates sustainable jobs.

From time to time, the EU launches schemes aimed at helping member states kick-start their own initiatives to support start-ups that have the potential to grow into thriving businesses. The VentureEU was a pan-European venture capital fund designed to address Europe’s equity gap, the fragmentation of the venture capital market and the need to attract additional private funding from institutional investors into the EU venture capital asset class.

More recently, the European Commission and the European Investment Fund have been making available additional resources through initiatives under the Equity Instrument and InnovFin Equity to support further innovations in artificial intelligence, blockchain, space technology and the blue economy.

A simple but incomplete definition of venture capital is financing that investors provide to start-up companies and small businesses that are believed to have long-term potential. The venture capital industry was at its best in the 1990s when tech companies, especially in the US, revolutionised how we work and communicate. It is now being reinvented to help policymakers achieve the ambition of investment in the green economy and even more innovation in financial services, health and the sharing economy.

One myth many accept as reality is that venture capital is cheap and comes with no strings attached by the investor company. This is far from reality. Private venture capitalists are often portrayed as risk-takers who back bold new ideas. Still, they put very little of their own money on the table.

The start-up boom... is also the result of policies based on myths about entrepreneurship and start-ups

The standard venture capital fund charges an annual fee of two per cent on committed capital over the fund’s life − usually 10 years – plus a percentage of the profits when firms successfully exit. This is not exorbitant when one considers that only 10 to 20 per cent of start-ups become successful businesses. Despite the hype surrounding venture capital marketing, it is essential to remember that “venture capitalists bury their dead very quietly”.

Marianna Mazzucato, a professor in economics of innovation and public value at University College London, is the author of The Entrepreneurial State: Debunking Private vs Public Sector Myth. She argues: “The start-up boom is partly the result of the lack of high-quality jobs in the old economy. But it is also the result of policies based on myths about entrepreneurship and start-ups.”

The fascination with tech cities − like our own Smart City ‒ stems from a perception that a country is missing the kind of ‘entrepreneurship’ culture that fuelled the success of Silicon Valley.

Mazzucato comments on the British (and EU) “infatuation with small and medium enterprises, which dates back to the early 1970s and is based on the idea that economic growth is created by ‘entrepreneurial’ small firms”.

She insists: “What I believe should be emphasised is not start-ups or entrepreneurs in and of themselves, but the innovation ecosystems within which they operate and which they depend on if they are to become what does matter: high growth innovative firms of any size with that system.”

Start-ups in the emerging green innovation ecosystem will likely thrive in countries like Germany and China, where the public sector is able and willing to fund the high-risk investments that create the technologies and platforms on which start-ups can thrive.

Small countries may not have the clout to invest public money directly in significant innovative technology. They will do well to partner with the private sector to cooperate in the innovation ecosystems of larger countries that enjoy economies of scale.

This is the best way to avoid waste of public money and the risk of “secular stagnation”.