Kit Malthouse, deputy mayor of London for Business and Enterprise, has a dry way of saying how the UK’s capital will make use of its limited resources to support innovation and venture capital.

In an opening address at the second day of the Mission-Oriented Finance for Innovation conference (MOFI2014) last month, Malthouse said he had a budget of £200m ($300m) and a team of 25 to manage an economy that was about 10% bigger than Austria’s. This meant the local government could “not do too much but needs to focus”. Too often, he said, “governments spread the jam too thin”.

He has identified four areas to spread the jam:

Infrastructure, including transport, power and communications;

Dealing with London having the demographics of a developing nation in the east as 2,500 migrants relocate to the city each week, some of whom require skills to find jobs;

Moving from a mono-economy focused on financial services to include more of its science and technology-focused assets; and

Supporting small business.

The last point is a particular concern for Malthouse, not just because he has founded five startups (two of which are still going). He said small venture capitalists (VC) were not investing in these businesses requiring less than £2m.

To help rectify this, the city last month committed to a £25m London Co-investment Fund.

The London Co-investment Fund will operate as a “side-car” fund. The successful investment partners will be allocated funding from the central pool that they can co-invest alongside their own money in any businesses it chooses as long as it fits the selection criteria.

Businesses supported by the fund will typically be graduates from accelerators, incubators and support programmes, be based in London and seeking to raise between £250,000 and £1m.

At the time of the fund’s launch, John Spindler, chief executive of Capital Enterprise, said: “The London Co-Investment Fund is an important step towards enabling start-ups in London’s burgeoning tech cluster to raise a significantly large seed round, so that they have enough resources to ‘prove the market’ and thereby be in a position to raise follow on money that will give them the best chance to become world leading companies.”

At MoFi2014, Malthouse put it more bluntly: “VCs will catch the ball when lobbed at them. We [as government] are not specialists in fostering innovation but we know it happens somewhere. For this, culture and entertainment are as important as science and technology and London is a fun city.”

But, whereas Berlin, Germany’s capital, was able to boost itself a decade ago as a startup hub when its then-mayor, Klaus Wowereit, said: “Berlin ist arm, aber sexy” (poor but sexy) London struggles with a worsening economic inequality.

A day earlier at MOFI2014, Matthew Taylor, CEO of Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) had warned an unequal distribution of assets would be a barrier to people’s self-expression, and ability to found companies. Given a third of people in the UK have no assets it is harder to develop an idea to something people could back.

Unless carefully managed, London’s co-investment fund, therefore, could unintentionally reinforce the economic inequality even while offering a greater number of options for startups to be formed.