Nathan Friedman is the CEO of HemaSense, an Arizona-based startup with a wearable patch that detects bleeding beneath the skin before it surfaces at skin level. With a background in medtech innovation, Friedman and his team saw an opportunity to improve health outcomes for patients post-surgery. They developed a device that measures electrical conductivity through tissue to alert clinicians to bleeds up to 7 centimeters deep in patients recovering from catheter-based procedures. When caught early, treatment is as simple as direct pressure, sparing patients from transfusions and secondary surgery.
Clearly, Friedman and his team were on to something — this device can have a real impact, and investors noticed. HemaSense raised $630,000 in a pre-seed round from 19 angel investors. Several qualified for Arizona’s Angel Tax Credit, receiving up to 35% of their investment back as Arizona state income tax credit, reducing their financial risk while giving HemaSense the early capital it needed to advance.
The Partnership for Economic Innovation’s (PEI) WearTech Applied Research Center awarded the company an additional $250,000 in matched public funding. Together, those two sources of capital funded HemaSense’s research, testing and validation, moving the company from early development to clinical evaluation with an FDA submission targeted for 2026. HemaSense represents what Arizona’s Angel Tax Credit is designed to make possible.
The Stakes for Arizona’s Innovation Economy
Arizona ranks No. 1 nationally for international investment, attracting $195.7 billion since 2020. Yet the critical funding gap between research and commercial investment, known as the “valley of death,” is where promising innovations stall. Early-stage companies in MedTech, bioscience and clean energy are among those most at risk. The Angel Tax Credit draws private capital in at their most critical stage.
What Is Arizona’s Angel Tax Credit?
An angel investor provides early-stage capital to a startup before the company is large enough to attract institutional venture funding. These investors take on significant risk in exchange for equity. Arizona’s Angel Tax Credit, created in 2006, reduces that risk by offering qualifying investors a direct credit against their state income tax liability.
Arizona allocates $2.5 million in Angel Tax Credits annually, yet a significant portion goes unclaimed each year. The program has existed for nearly two decades and most Arizona founders remain unaware it is available.
Who Qualifies?
A company can qualify for Qualified Small Business status through the Arizona Commerce Authority by meeting these requirements:
- At least two Arizona-based employees, paid or unpaid
- Total assets under $10 million
- Proof of substantial operations in Arizona
- Registered to do business in Arizona
How the Program Works: The Company Side
To participate, a company submits a $50 application to the Arizona Commerce Authority for Qualified Small Business certification. Once approved, it appears on a publicly available list of ACA-certified companies, making it visible to angel investors actively searching for qualifying investment opportunities. Timing matters here.
Founders who earn certification before entering a fundraising round give investors the ability to claim the credit from day one, removing a potential barrier to closing the deal. Companies incorporated outside Arizona are eligible as long as they maintain substantial operations in the state. Certification renews annually, and the lifetime maximum credit available to a single company is $2 million.
How the Program Works: The Investor Side
Investors in MedTech and bioscience qualify for a 35% state income tax credit; all other qualifying companies come in at 30%. Any investment between $25,000 and $500,000 in a single tax year counts, as long as the investor holds no more than 30% of the company.
The tax credit is claimed over three consecutive years, 12% in the first year, 12% in the second year, and 11% in the third year. Any unused credits can be carried forward for up to three additional years.
The one deadline investors cannot miss is the 90-day window to apply to the ACA after writing the check. That deadline is firm.
Individual investors, LLCs and individual grantor trusts are eligible; C-Corps are not. For those who cannot hit the $25,000 minimum alone, Special Purpose Vehicles structured as LLCs allow investors to pool smaller contributions and still qualify.
Apply Before the Credits Run Out
Every year Arizona sets aside $2.5 million for this program, and every year a portion goes unclaimed. That money does not roll over. It simply disappears, and with it, a missed opportunity for Arizona founders and the investors who believe in them. The place to get started is azpei.org and the ACA Angel Tax Credit website.
PEI’s Role in Closing the Awareness Gap
PEI is working with the Arizona Commerce Authority, Arizona Bioindustry Association, MDM2 and other partners to close the Angel Tax Credit awareness gap, with a focus on MedTech. PEI links early-stage companies with resources, mentorship and investor networks that accelerate their path to market. Its Applied Research Centers guide a $20 million portfolio of industry-led projects, and its demo days and commercialization programs create investment-ready companies positioned to benefit from programs like the Angel Tax Credit.
Kathleen Lee serves as director of Applied Research Programs for Partnership for Economic Innovation and senior vice president of Regional Initiatives for Greater Phoenix Economic Council.
With a multidisciplinary background in economics and regional and urban planning, Lee leads high impact projects that advance the region’s capacity for innovation and job creation — such as the GPEC-Brookings partnership for sustainable regional economic growth that led to establishment of Partnership for Economic Innovation.
Did You Know: An investor who commits $25,000 to an Arizona MedTech startup receives $8,750 in state tax credits spread over up to six years, effectively reducing the real cost of the investment to $16,250 while still receiving the full value of equity in the company. Pointing out that Arizona allocates $2.5 million in Angel Tax Credits annually, Lee advises investors: “Apply before the credits run out.”
