So-called "angel" investors would get a tax break for money invested in start-up companies under Labor's plan to grow the innovation sector.
A Labor government would also set up a new federal agency - Innovate Australia - and "innovation hubs" in regional areas.
The announcement comes ahead of the federal government's Innovation statement on Monday.
Federal opposition leader Bill Shorten said Labor's plan was about making Australia better at turning its bright ideas into businesses and ensuring this was occurring across the country.
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"Currently the two-thirds of all the start-ups and innovation are starting in Sydney - but Labor has a vision of Australia that is more than the three large east coast cities," Mr Shorten told reporters in Melbourne on Friday.
"We get there are great ideas in the regions of Australia so we want to provide the opportunity for clever people to back in their ideas through regional innovation hubs right through Australia."
The innovation hubs would be based within universities, TAFE colleges, local councils or business organisations.
More private sector investment in the sector would be encouraged via the Australian Angel Investment Scheme, based on the successful British Seed Enterprise Investment Scheme.
This would provide a 50 per cent tax deduction upfront for an investment up to a maximum of $200,000 a year.
A full capital gains tax exemption would be available for equity held in the start-up venture for more than three years.
Any realised losses following investment in the scheme can be deducted against wage and salary income.
And capital gains tax could be deferred on investments if the investor directs a prior capital gain into a new start-up venture.
The scheme would only apply to start-ups with a maximum of 25 employees and $400,000 in assets.
"Australia punts more on the Melbourne Cup each year than it invests all year in innovative new start-up businesses," Mr Shorten said.
"Not enough finance is flowing into our start-up sector, which is stunting innovation in Australia, slowing the development of new ideas and new business opportunities."
Labor's plan also includes creating "landing pads" in the US and Asia to provide support to Australian start-ups that do move offshore.
“At the moment there's 20,000 smart Australians who have gone to Silicon Valley,” he said.
“Basically, we’ve got an aspiration to help turn Silicon Valley into Kangaroo Valley where we get the Australians working there and help back them in so they're going to achieve what they're going to on an even bigger stage and that provides them the opportunity come back and reinvest in Australia.”
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