We examine how capital gains taxes affect investment in start-up (i.e., pre-IPO) firms. Using data on capital raised by start-up firms in individual funding rounds and a difference-indifference research design, we estimate the effect of the Small Business Jobs Act of 2010, which implemented a full exemption from federal taxation of capital gains from the sale of qualified shares. As a result of higher expected after-tax returns (due to lower future capital gains taxes on the ultimate liquidation of the investment), we hypothesize and find evidence consistent with this capital gains tax reduction increasing the amount of investment in start-up firms per funding round by about 10.8%. We also provide evidence that this effect is concentrated in start-up firms that are likely to be more financially sophisticated.