Despite managing assets totaling $23 trillion, little research has been conducted on the investment activities and impact of Development Finance Institutions (DFIs). We document that over the past three decades, DFIs have increasingly invested in venture capital (VC), participating as limited partners in one out of every six deals. When investing in VC, DFIs pursue not only financial returns but also aim to address market failures such as externalities, information frictions, and coordination challenges. Based on their mandates, we identify four objectives DFIs seek to achieve through VC investments: building a VC ecosystem, supporting entrepreneurship and SMEs, fostering innovation, and promoting sustainable business practices. Our analysis of DFI investments in developing countries yields mixed results. On the positive side, DFIs are more likely to target industries that generate positive externalities for society and provide more capital to underrepresented fund managers. However, they are less likely than conventional VC investors to support early-stage deals, and their investments have no significant effect on firms’ success and innovation. In developed countries, we find little evidence that DFIs address market failures through their investments. Overall, our results suggest that DFIs have significant room to enhance their impact by reallocating capital toward developing countries, where they also achieve better financial performance than in developed countries. Additionally, DFIs could more directly address market failures and accept higher risks in their portfolios to fulfill their developmental objectives.