The former business secretary said the offer to take a 25% stake in the firm's UK operations is "quite close" to what he would have offered.
He said it showed a commitment to south Wales after Tata announced it would sell its loss-making UK operations.
But he said it was only a first step, with the steel market "awful".
"The 25% offer is quite close to what I would have done," said Sir Vince, who served in the coalition government between 2010 and 2015.
"It sends the right message the government is committed to south Wales and the steel industry and it is within the rules we have to operate."
However, speaking to BBC Radio Wales' Good Morning Wales, he said there were still "a lot of hurdles to overcome".
"We don't know who the buyer is and if there is a buyer, if they will succeed because the economics of the situation at the moment are pretty awful with the low world prices [for steel] and ferocious competition," he said.
This makes a management buyout "risky", Sir Vince said, adding that, long-term, habits in British industry must be changed, with a proper strategy drawn up and more products used that are made in the UK.
Responding to suggestions his successor as business secretary, Sajid Javid, had been slow to intervene, he said the government was "reasonably cautious" because of the "economics of the industry".
He said: "They haven't done a complete U-turn, but they have acknowledged reality that government has an absolutely key role working alongside private business and I'm encouraged by that.
"As a starter it is a good move and we should applaud it. Let's hope there is a good buyer and they can turn it around".

Inspector Harold Stephens said the County Plan, which will be the blueprint for development in County Durham for the next 20 years, was "unrealistic and flawed".
The council had wanted him to reassess his findings but he has refused.
The authority has now said it will take that decision to court.
Ian Thompson, the council's corporate director of regeneration and economic development, said: "It came as a disappointment that the planning inspector has declined to reopen the examination.
"We maintain the plan offers the best prospect for economic growth and have explored every option and opportunity in our efforts to demonstrate this, which has included employing independent planning experts to review our business-backed predictions for growth.
"We now have no choice but to pursue this matter through the courts by way of a Judicial Review."
In the plan, the county council said it wants to build 31,400 homes and create thousands of jobs over the next 20 years, in a bid to attract more businesses and people to the area.
But Mr Stephens said the plan was "unsound" and assumptions about job growth were "very ambitious".

Joel Warwick also twice tried to kiss her and asked her to "bend over" a photocopier machine, the Health and Care Professions Council (HCPC) said.
He denied misconduct and said it was mutual flirting at an East Midlands Ambulance Service base in Lincolnshire.
The panel said his actions in 2015 were so serious it had to suspend him.
The tribunal hearing on 4 April was told that Mr Warwick had removed a pen from the 'V' of his colleague's blouse and squeezed her breast when he placed the pen back into her blouse.
On another occasion Mr Warwick told the complainant he "needed a hug".
He started working at the Spalding station in August 2014 and claimed both he and his colleague had "engaged in flirtatious behaviour".
In reaching its conclusion the HCPC said the panel acknowledged Mr Warwick was "of good character", with an "otherwise unblemished career".
It also accepted that he had apologised to the complainant shortly afterwards.
Panel chair Claire Bonnet said: "Mr Warwick had demonstrated limited insight into how his actions transgressed professional boundaries.
"His misconduct was so serious that the need to uphold professional standards and public confidence in the profession and the regulatory process would be undermined if a finding of impairment was not made in these circumstances," she added.

Thomas Bebbington, 22, from Shrewsbury, was last seen entering the river near the Dana Steps at about 19:20 GMT on 10 November.
A body was found by a member of the public on private land near Leighton, about 10 miles (16.09km) away from the centre of Shrewsbury, on Monday.
Mr Bebbington's family has been informed, West Mercia Police confirmed.
A Tata Steel management buyout is "risky" but the UK government's offer of help is a good one, Sir Vince Cable has said.
[NEXT_CONCEPT]
Durham County Council is seeking a judicial review after a planning inspector refused to re-examine his criticism of proposals for the county.
[NEXT_CONCEPT]
A paramedic has been suspended for eight months after he squeezed a colleague's breast and inappropriately touched her bottom.
[NEXT_CONCEPT]
Police searching for a man who went missing last month have found a body on the banks of the River Severn.