Despite being among the largest institutional investors globally, Development Financial Institutions’ (DFIs) investment activities remain understudied. We document DFIs’ substantial growth in venture capital (VC) investments, where they participate as limited partners in one in six deals and aim to address market failures, such as externalities and information frictions. We identify four objectives DFIs pursue through VC investments: building VC ecosystems, supporting entrepreneurship, fostering innovation, and promoting sustainability. We test whether DFIs meet these objectives and our findings vary between developed and developing economies. In developing economies, DFIs demonstrate greater mandate alignment by targeting industries with positive externalities, providing capital to underrepresented fund managers, and improving performance transparency, though they invest less in young funds and early-stage deals than conventional VCs. Firms backed by DFIs achieve similar outcomes to those backed by conventional VCs in terms of profitability, employment, patenting, and sustainability, but attract fewer follow-on investments from private capital. In developed economies, which account for most DFI VC investments, we find limited evidence that DFIs address market failures and their impact is more muted. Organizational structure and investment approach explain why DFIs generally fall short of their stated mandates. Bank-affiliated and subnational DFIs underperform, while direct investments appear more effective at realizing developmental objectives.