The new London Co-investment Fund (LCIF) has been given £25 million by the Mayor of London to fund digital startups.

LCIF has been given the money by the mayor of London and the London Enterprise Panel’s “Growing Places Fund”, to "address the funding gap in London faced by tech startups seeking to raise seed investment".

LCIF is also looking for co-investment venture capital firms and angel syndicates with experience of investing in early stage digital, science and technology companies.

The LCIF says it will co-invest alongside up to eight "competitively selected" players in the early stage investment community.

Typically the businesses LCIF says it will support will be emerging from accelerators, incubators and support programmes, and seeking to raise between £250,000 and £1 million. "According to the latest evidence, this is the largest present gap in the market for investment," said LCIF.

The selected co-investment partners will be allocated a “pool” of between £1 million and £5 million of LCIF money that can be drawn upon to co-invest alongside their own money in a number of eligible London-based businesses selected by them.

The decision on who to invest in and on what terms will be the sole responsibility of the selected co-investment partners. LCIF will pay a small fee to contribute towards the selected partners’ cost of carrying out due diligence, and subject to eligibility checks and legal due diligence, LCIF will then directly invest the agreed amount in the selected businesses' seed round.

In exceptional circumstances LCIF can fund up to 49 percent of an individual business’ seed round, but LCIF says it will be looking for co-investment partners who can demonstrate the resources and commitment to invest significantly more than LCIF in both total, and on a per deal basis.

The LCIF expects to begin investing towards the end of 2014 and help up to 210 early stage businesses over the next three years.

The initiative was developed in partnership with Capital Enterprise, the membership body for universities, accelerators and incubators that support entrepreneurs in London.

Kit Malthouse, deputy mayor of London for business and enterprise, said: “London’s tech sector is booming with forecasts estimating that it will create 46,000 jobs in the next decade and generate a staggering £12 billion of economic activity.

"Despite this boom, we know that many budding science and tech startups find it difficult to raise the finance they need to grow. That is why we are delighted that we will be investing an initial £25 million that will be used to leverage early stage equity investment into over 200 fledgling London businesses."