From Patents to Payments: What Venture Capital Actually Finances Across the Global Economy

Venture capital finances research and frontier technology in wealthy economies but focuses more on logistics, payments and market access in developing countries, where it provides 66.3% of equity financing. Governments and development partners need country-specific policies that expand startup entry, strengthen investor protection and address shortages of scale-up capital.

Venture capital does not finance the same kind of innovation in every economy, and governments may waste public resources if they treat Silicon Valley as a universal model. A World Bank Policy Research Working Paper prepared by the Private Markets Group within Development Economics finds that wealthy countries attract venture funding for research, patents and frontier technologies, while developing economies receive more investment for logistics, distribution, marketplaces, supply chains and digital payments. This difference matters because venture capital now represents a major source of equity financing in many poorer countries.

Venture Capital Plays a Bigger Role Than Expected

The study combines PitchBook and Crunchbase records with equity-issuance data from the London Stock Exchange Group. Covering more than 150 economies, the dataset includes 269,915 startups that received funding between 2012 and 2023.

Combining the databases revealed considerable investment overlooked by individual sources. Recorded venture volume increased by 22.2 percent for the median upper-middle-income country and 16.8 percent for the median low- and lower-middle-income economy. Sub-Saharan Africa's measured investment volume rose by 29.7 percent, while the number of identified deals in Latin America and the Caribbean increased by 42.3 percent.

Venture capital remains approximately five times smaller relative to GDP in developing economies than in high-income countries. However, it accounted for 66.3 percent of total equity financing in the average low- and lower-middle-income country during 2021–2023, compared with 37.7 percent in wealthy economies. Its share in the poorer group had risen from 37.9 percent in 2015–2017.

For governments and development partners, this means venture capital should not be treated as a small or fashionable part of financial policy. In countries with weak stock markets and limited private equity, it may be the principal source of equity available to young businesses.

Innovation Is About Markets, Not Only Patents

Information technology received 40.8 percent of venture funding in high-income economies but 29.7 percent in developing markets. Wholesale and retail attracted 14.6 percent in developing countries, compared with 5.8 percent in wealthy economies. Transportation and logistics received 8 percent, nearly three times the 2.9 percent high-income share.

The report distinguishes knowledge-based innovation, such as research, patents, algorithms and proprietary technology, from organizational innovation involving distribution systems, brands, management, customer relationships and market access.

Knowledge-related terms appeared in 16 percent of venture-backed company descriptions in high-income economies but only about 10 percent in developing markets. Organizational language appeared in 17.7 percent of descriptions in low- and lower-middle-income countries and 16.5 percent in upper-middle-income economies, against 9.3 percent in high-income countries.

This does not mean developing-country startups are less innovative. Companies that build digital-payment platforms, agricultural marketplaces or delivery networks can reduce transaction costs, formalize businesses, improve financial inclusion and connect underserved communities. Governments should therefore assess innovation through economic and social outcomes, rather than counting only patents or research spending.

The Real Divide Is Startup Entry

The study separates venture-market development into the number of startups entering the funding pipeline and the amount of capital each entrant receives. The median high-income country recorded 10.54 seed deals per million people during 2021–2023. The figure was just 0.96 in upper-middle-income countries and 0.26 in low- and lower-middle-income economies.

The funding gap was narrower. Median investment per entrant reached $7 million in high-income countries, compared with $1.8 million in upper-middle-income and $1.7 million in low- and lower-middle-income markets. Median venture financing per person was $74.20 in wealthy economies, against $1.90 and $0.40 respectively.

These figures require different policy responses. Countries with capable investors but too few startups should simplify business registration, improve entrepreneurship education, support incubators and reduce the cost of experimentation. Economies producing promising startups but lacking follow-on funding need stronger domestic funds, institutional investors, regional investment platforms and responsible access to foreign capital.

A Country-Specific Road Map for Investment

Political stability, investor protection and tax policy strongly affect venture markets. Around 83 percent of the relationship between political stability and venture activity operates through startup entry. Approximately 93 percent of the association between tax-loss carryforward rules and venture depth also works through entry. Allowing startups to offset early losses against future profits can reduce the financial cost of experimentation.

International development partners can help through blended-finance facilities, co-investment funds, startup-data systems and support for domestic fund managers. Such assistance should address clear financing failures, remain transparent and avoid replacing private capital with permanent subsidies.

Private investors have opportunities in financial technology, logistics, e-commerce, education, manufacturing and digital market infrastructure. The risks include political instability, weak shareholder protection, currency volatility, limited exit opportunities and insufficient follow-on capital. Investors must examine management quality, local partnerships and distribution capacity alongside technology and patents.

The report recommends that every country first map its startup-entry rate, funding depth, sector composition and exit opportunities. Governments should strengthen investor protection, maintain predictable tax rules and remove unnecessary barriers to business creation. Development institutions should finance locally relevant innovation instead of importing high-income models. Venture capital can fund scientific breakthroughs, but in developing economies its most powerful contribution may be building the payment systems, supply networks and markets needed for wider economic transformation.