Estonian auditors criticise €261 million sitting idle in venture capital funds

Estonia's National Audit Office has found that the state moved hundreds of millions of euros into venture capital funds before the money could be put to use. As a result, €261 million remains in deposits, even though the finance ministry was simultaneously issuing short-term bonds to cover the State Treasury's routine expenses.

Almost €466 million has been allocated from the state budget to funds run by SmartCap, a subsidiary of the Estonian Business and Innovation Agency. Auditors said the size and timing of the transfers were not matched to the funds' investment needs.

Investments and costs

At the end of 2025, SmartCap's portfolio covered 17 companies and 16 sub-funds. Investment agreements totalled €230.4 million, of which €119.5 million had been paid out. A further €261 million was available for future investments and expenses, mostly held in fixed-term deposits. The deposits earned interest, but management fees were also being paid on the undeployed money.

Auditor-general Janar Holm called the approach irresponsible. He said state support for the venture capital market could be justified, but budget funds should not sit idle while the government borrows to finance daily operations.

SmartCap told the auditors that arranging venture investments can take several years, as hundreds of potential projects may need to be examined before a deal is made. The audit office noted that under the usual venture capital model, investors supply money only when it is needed to meet an agreed commitment.

Vague targets and overlapping roles

SmartCap's funds aim to improve access to capital for innovative firms, develop green technologies and strengthen Estonia's defence industry. Auditors, however, found no measurable targets or deadlines, making it hard to judge whether past investments achieved their aims.

They also criticised the economy ministry for acting as policymaker, investor and supervisor of the funding agreements at once. Investment rules were spread across several documents and were mostly confidential, and the materials given to the government did not offer a balanced view of the funds' finances, risks, costs and budget impact.

More than half of the value of SmartCap's commitments has gone to foreign fund managers. In his response, then economy minister Erkki Keldo said reporting had improved and the ministry had started assessing the impact of the investments. The ministry is also considering placing SmartCap's available funds with the State Treasury and plans to revise the company's governance model.