Innovation in key core technologies is a crucial guarantee for high-quality economic development and enhancing national scientific and technological competitiveness. Venture capital (VC) institutions provide long-term capital support to enterprises through equity investment while leveraging their professional judgment, resource integration, and governance synergy to help enterprises identify market opportunities, optimize R&D pathways, and reduce uncertainties in the innovation process, thereby emerging as a significant market force driving breakthroughs in key core technologies. Taking China’s A-share listed companies from 2007 to 2024 as the research sample, this paper constructs a fixed effect model to empirically test the impact of VC institution shareholdings on key core technology innovation in enterprises and its underlying mechanisms. The study finds that VC institution shareholdings significantly promote key core technology innovation in investee enterprises. After VC institutions hold shares in the investee enterprises, VC enhances R&D intensity, boosts foundational research capabilities, and strengthens management equity incentives, thereby facilitating key core technology innovation in investee enterprises. In addition, VC institution shareholdings have a significant incentive effect on key core technology innovation in enterprises that lack research background, engage in industry-university-research collaboration, and are in the mature stage. Therefore, enterprises should actively introduce VC institutions as strategic shareholders, particularly by optimizing equity incentives to motivate core technical personnel and leveraging VC resources to compensate for executives’ research capability deficiencies. Governments should establish a categorized VC policy support system, refine VC regulation and exit mechanisms, strengthen policy incentives for long-term investments and hard technologies, and guide capital to more precisely align with corporate innovation needs.