The funding comes as part of a new Enterprise Capital Fund (ECF), which will invest in science, technology and engineering-based small and medium-sized businesses.
The new fund, Longwall Ventures ECF, is the 12th Enterprise Capital Fund and is made-up of £25m of government investment and £15m from private investors.
"This £40m Enterprise Capital Fund will address a gap in the market and help our small businesses find the finance they need to realise their potential," said Fallon.
With this funding, Longwall Ventures ECF will be able to invest in funding rounds of up to £2m to support new businesses and will be managed by Capital for Enterprise Limited, the government's investment company.
"Difficult economic times present opportunites for disruptive technologies and we are very pleased to have investors that share that vision," said Michael Penington, a partner of Longwall Ventures. " The ECF programme has been crucial for us in attracting investment and raising a fund that has the scale to commercialise such disruptive technologies."
In total the government has committed £200m for investment into Enterprise Capital Funds between 2011 and 2015, and since May 2010 £90m has been invested in over 70 companies through the programme.
For more information head to www.capitalforenterprise.gov.uk