Development Directions of the Venture Capital Market in an Innovation Oriented Economy

In an innovation oriented economy, the venture capital market is one of the key institutional mechanisms for financing high technology firms and companies with rapid growth potential. The article analyses the economic nature of venture capital, its main features that distinguish it from traditional bank financing, the portfolio approach to risk management and the logic of “exit” mechanisms. On the basis of global experience, the roles of seed, early, growth and late stage segments, the structural patterns of capital flows into priority domains such as artificial intelligence, climate technologies and deep tech, and emerging regional divergences are examined. The main challenges arising from the institutional, ecosystem and market structure of the venture capital industry – including legal and regulatory gaps, a shortage of quality deal flow, weak exit markets and high concentration of capital – are systematised. The article substantiates key development directions such as improving the legal and regulatory environment, broadening the base of institutional investors, promoting public–private co investment and fund of funds models, strengthening the innovation ecosystem and enhancing sectoral focus. In the context of Azerbaijan, the formation of a venture capital market is shown to be of strategic importance for technological entrepreneurship, regional development and the construction of a competitive innovation system, and policy recommendations are put forward regarding priority measures in this field..