Do tax subsidies prompt investors to take on risk? We address this question within a framework in which venture capitalists (VCs) combine outside funding with incentive-based compensation and examine a policy that cut capital gains taxes on startup investments. Using bunching, regression discontinuity, triple-differences, and matching designs that exploit industry eligibility, investment vintage, and holding-period requirements, our study analyzes data from 158 thousand investor-firm pairings over two decades. We first identify strategic investment timing, with subsidies prompting clustering at tax-eligible holding-period thresholds. We then document strategic capital allocation, with firms just below eligibility thresholds receiving more funding than those just above. Most notably, when and where tax subsidies apply, VCs shift their project selection toward riskier ventures: they invest more into pre-commercial stage startups, become more likely to provide startups with their initial capital, become more likely to invest in industries in which they have no prior experience, and more in firms with pre-existing debt, while becoming less likely to co-syndicate their investments. These portfolio firms eventually show higher failure rates. On the flip side, the increased risk-taking yields salient return outcomes: tax-subsidized VC-backed ventures attain higher valuations at exit and are more likely to reach "unicorn status." None of these patterns are observed for comparable non-VC investors receiving the same tax subsidies. Our study is the first to show that tax policy can shift entrepreneurial financing toward riskier, more experimental, valuable ventures, with outcomes shaped by investor organizational structure and incentives.