Data reveal that policymakers should not equate strong Venture Development Organizations (VDOs) with private venture capital companies; the purpose of creating public policy to increase the availability of innovation-centered risk capital can be lost if one presumes VCs and VDOs are the same. While there are many similarities between individual VDOs and VC funds, important differences in industry concentration emerge when the two groups are compared in aggregate, which may result in different long-term economic impacts.
Effective VDOs are important drivers of regional innovation and of pushing emerging tech businesses forward. VC, on the other hand, can play an extractive role, particularly in markets with scarce equity finance options.
SSTI’s original research shows the collective contributions of VDOs to long-term economic impact reach into the tens of billions of dollars, and they are often leading resources within the territory they serve. With startup funding requirements increasing, VDOs and companies often rely on co-investment from traditional venture firms to fill rounds. Unsurprisingly, frequent VC co-investment can lead to VDO portfolios often looking like traditionally structured venture funds when given only a cursory or superficial view.
Looking first at 57 industry vertical markets that cut across multiple distinct industry sectors, VDO and VC investment patterns show broad similarities, but also important differences. Both VDOs and VCs are heavily concentrated in AI and are increasing their share of AI-related activity over the past four years (Figure 1). There is, however, a notable difference in the concentration of AI deals between the two investor types, with VDO activity lower across all quarters and, on average, 4.8% lower than that of VCs. VDO concentration in AI captured 17% of total deals in Q2 2026, whereas 21% of VC deals were in AI during the time period. This data highlights that VDOs are tracking VC activity in a dominant and emerging sector, though at a reduced concentration that may be driven by region, investment thesis, capital availability, or policy-related mandates placed on the VDOs.
Figure 1. Quarterly trend of AI industry vertical share of deal count for VDO and VC investments.
Manufacturing and agriculture are two industry verticals where VDO focus is notably greater than that seen in traditional VCs (Figure 2). These sectors are economically critical to regional economies, and VDO investments may reflect the concentration of both innovative ideas and customer concentration outside of typical VC hotbeds. The increased activity in manufacturing and AgTech also suggests that VDOs are closing important capital gaps in these sectors that drive important contributions to their regional economies—as well as the national economy and global competitiveness.
Figure 2. Average quarterly share of manufacturing and agtech industry vertical deal count for VDO and VC investments.
A company can exist in multiple industry verticals; primary industry sectors are distinct and allow companies and investments to be grouped without overlap or double counting. The top six industry sectors are the same for VDOs and VCs, but their rankings and concentrations differ (Figure 3). Compared to VCs, VDOs are more heavily weighted in the pharma and biotech, and healthcare device and supplies industries. When these industries are combined with health technology systems, VDOs average 23.9% of their deals in the larger biohealth arena, compared to 17.9% for traditional VCs. VDOs’ support for biohealth companies supports local and regional economic growth and advances new solutions to a wide variety of healthcare challenges that can reach global markets.
Figure 3. Average quarterly share of top industry sector deal count for VDO and VC investments.
Looking at the complete list of 41 industry sectors, there are significant differences in concentration of smaller industries that reinforce the potential for economic and regional impacts of VDO investment. VCs tend to show more activity in consumer non-durable goods and financial services, whereas VDOs are more concentrated in chemicals, agriculture, and computer hardware (Figure 4). The differences point to VDOs generally focusing more on traded-sector businesses that require physical spaces and industrial or business applications, whereas VCs lean more toward recurring consumer purchases or finance.
Figure 4. Average quarterly share of select industry sector deal count for VDO and VC investments.
The enhanced VDO focus on health, agriculture, manufacturing, and industrial applications may offer improved economic outcomes from companies with products and business models that are ‘stickier’ to place and can defend their competitive advantage through IP strategies and regulatory barriers. These companies are also likely to have physical facility requirements that create a nexus of company activity, employment, and investment. In contrast, AI and software companies may be quickly spun up and acquired. This speed of acquisition provides strong financial incentive for investors. However, it also introduces some risk that virtual workforces and digital products will be more easily absorbed into established companies. thus limiting long-term local employment growth.
Both VDOs and VCs are tracking market trends and investing in businesses with the potential to provide significant financial returns. The differences in industry concentration and portfolio construction, while perhaps more nuanced than obvious with just a casual view of the two groups, demonstrate the significant role VDOs can play in increasing innovation, competitiveness, and economic impact in regions outside those exceptionally resourced in private risk capital.
Do the VDOs and funds in your region demonstrate similar patterns, and if so, are they driven by the strengths in the region or are there other selection criteria involved? To discuss these issues and connect with peers and practitioners across the country, please consider joining our TBED community of practice.
This page was prepared by SSTI using Federal funds under award ED22HDQ3070129 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.