Governments around the world have introduced angel investor tax credits to stimulate equity financing with the purpose to foster innovative entrepreneurship. This evaluation study provides an analysis of the investor tax deduction programme that was introduced in Sweden 2014.

Exploiting investor eligibility for the tax subsidy, we use a difference-indifference approach to estimate the performance of the beneficiary firms compared to firms backed by non-eligible investors. We further investigate the investors and investment characteristics.

Our findings imply that the programme seems to direct funds to companies with low growth prospects. The descriptive analysis indicates that the majority of investors targeted by the program most likely are not sophisticated business angels or driven entrepreneurs. The programme therefore seems to contribute to a poor allocation of funds in the economy.