This paper examines how expanding private capital markets contribute to rising economic inequalities in the U.S. We show that the share of early-stage financing raised from U.S. high-net-worth individuals tripled from 2004 to 2022. Exploiting the expansion of the QSBS tax exclusion, we find that HNWIs’ investments made startups 5.6% more likely to stay private. Counterfactual simulations reveal that HNWIs’ excess returns on early-stage investments explain 26% of the growth in the top 0.5% wealth share over 2010-2022. Finally, investor entry increased incumbents’ returns and encouraged further investments, generating a self-reinforcing feedback loop between private capital market growth and inequality.
