The bank was one of the founding partners in the Â£2.5 billion ($4.1 billion) scheme, which aims to invest up to Â£10 million in emerging businesses with sales of between Â£10 million and Â£100 million.
However, a disagreement over investment strategy and the fund's focus has led to the lender quitting the initiative, the Daily Telegraph reports.
The institution also rejected the plan for equity investments - rather than mezzanine debt offers - to be made.
A spokesman from the financier said: "Santander believes it will be able to make better use of its resources by focusing on its own regional funds."
The bank recently claimed that its solid first-quarter performance in 2011 means it is now a serious challenger to the dominance of the largest lenders in the UK.
By Tony Aynsley