Abstract: This study is to evaluate the causal effect of government venture capital (GVC) on firm digital transformation (DT). A quasi-natural experiment was constructed from staggered GVC investment policies. A time-varying difference in differences (DID) model with firm and year fixed effects was estimated for A share listed firms during 2006 to 2024. Event study tests and placebo checks were implemented, and matched DID and alternative DT measures were used for robustness. Results show that GVC promotes DT. Channels are identified in greater digital investment, stronger inflow of high skill talent, improved corporate governance, and relief of financing frictions. The effect is stronger in industries with high concentration and in regions with low market openness. Real outcomes are observed: research and development (R&D) spending rises, firm scale expands, and innovation output increases, which indicates sustained capability building. The contribution lies in micro level causal evidence on how public equity with a market-oriented mandate advances DT, a clear mapping from talent agglomeration and governance enhancement to digital upgrading, and a context specific heterogeneity profile across industries and regions. Policy suggestions follow: GVC should be organized as patient capital with governance enhancing mechanisms and should be coordinated with talent programs and data infrastructure to amplify digital dividends.

Key words: Government venture capital funds, Digital transformation, Digital economy, Time-varying DID