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EMAC 2020 Annual Conference

Do Policies incentivising investment in early-stage start-ups really encourage investment?

Published: May 27, 2020


Stav Rosenzweig, Ben-gurion University of the Negev; Eliran Solodoha, Ben-gurion University of the Negev; Shai Harel, The Hebrew University of Jerusalem


policy; startups; angels


There is disagreement in the literature regarding the impact of policies incentivizing investors – and especially business angels – to invest in technology start-ups. We suggest that a policy that incentivizes investments in young technology start-ups effectively communicates a message of low legitimacy of these early-stage firms, thereby signalling the customers of the policy – business angels – that the investment is risky. We employ a quasi-experiment, using census data on about 2,500 Israeli start-ups in seven high-tech industries with over 4,700 business angels, we find that following the implementation of a policy known as the Angels’ Act, the number of angels investing in seed stage start-ups decreased. Our findings indicate that the policy, originally designed to increase investments in early-stage firms, effectively boomeranged. We contribute to the literature by revealing that similar to policies that target consumers, policies that target investors as customers may signal negative aspects and have unintended consequences.