Abstract: By collecting matching sample from the PEdata Database and using the negative binomial model, the impact of equity participation of China’s Government Venture Capital Guiding Funds (GVCGFs) on enterprise innovation is investigated in this paper from two theoretical perspective of tolerance for failure and incentive. The main results are summed up as follows: (1) GVCGFs participated venture capital (VC) funds are more efficient in promoting enterprise innovation than private VC funds if they provide the private capital with the loss-related compensation, while they show no significant difference with private VC funds if they provide with the revenue compensation, the fixed-revenue compensation, the revenue compensation plus fixed-revenue compensation, or take the market-oriented operation. (2) If GVCGFs participated VC funds are managed by low-reputation VC firms, or invest in high-tech enterprises, the innovation promoting effect of loss-related compensation is more significant. The above results support the hypothesis of tolerance for failure, indicating that the key for GVCGFs to promoting enterprise innovation is to improve the venture capitalist tolerance for failure with the loss compensation.