In recent years, and especially against the backdrop of the war and the complex reality it has created for the Israeli economy, the question of how Israel is perceived by the global business and financial community has repeatedly resurfaced. In times of uncertainty, investors become more sensitive to risk, incomplete information and the ability to verify promises. Within this broader context, it is important to understand how Israeli innovation itself is interpreted by different investors.
Israel likes to present itself as a hub of innovation, a small country that produces startups at a remarkable pace and attracts capital from around the world. But behind this image lies a deeper question that many entrepreneurs encounter only when they begin raising funds abroad: Do foreign investors perceive Israeli innovation the same way local investors do?
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Israel likes to present itself as a hub of innovation, a small country that produces startups at a remarkable pace
Not always. Sometimes, the gap is not technological but perceptual.
It is precisely at this intersection that Dr. Eliran Solodoha, a senior lecturer and researcher in entrepreneurship and innovation at the Peres Academic Center, focused his recent study. Published in the Journal of Business Strategy, the study examined how local investors and American investors assess risk when exposed to an innovative Israeli startup.
The study was based on a survey of 151 experienced investors, 87 Israelis and 64 Americans. All participants received exactly the same information and were asked to evaluate an Israeli startup in the blockchain gaming sector. The company operates in a highly innovative but uncertain field, developing an NFT-based racing game.
The choice was deliberate. It reflects the reality in which many young technology companies operate: a fast-moving, competitive market full of promise, but one that requires investors to make decisions based on partial information and fill in the gaps through interpretation.
Participants were asked to evaluate the company along three key dimensions: how innovative it was, how risky it appeared and the extent of the information gap that made it difficult to understand its true condition and chances of success. Put simply, the question was not only whether they liked the idea, but whether they felt they had enough information to evaluate it rationally.
Here, a particularly interesting pattern emerged. American investors reported higher levels of perceived information gaps and, accordingly, higher levels of perceived risk. Israeli investors, by contrast, tended to feel they understood the company and its environment better, and therefore perceived lower levels of risk.
The most significant finding, however, was not the gap itself, but the way innovation influenced it.
Intuitively, innovation is often seen as a positive signal that can make a venture more attractive. But it does not necessarily reduce risk. In fact, innovation can function as a double signal: it may point to competitive advantage and growth potential while simultaneously increasing uncertainty about feasibility, market adoption and execution.
The study found that this effect is not uniform. It depends heavily on the investor’s identity and ability to verify information.
Among Israeli investors, when the company was perceived as highly innovative, the relationship between the information gap and perceived risk weakened. In other words, even when they did not have complete information, the perception of innovation made the situation feel less threatening. Innovation served as a positive signal that compensated for uncertainty and reduced perceived risk.
Among American investors, the picture was different. When the company was perceived as highly innovative, the information gap became more problematic and contributed to a significant increase in perceived risk. For a foreign investor, high innovation combined with incomplete information may be perceived not as an opportunity, but as a particularly risky situation: something that looks impressive, yet is difficult to verify or fully understand.
To understand the meaning of this finding, it is worth returning to a fundamental principle in entrepreneurial finance, known in academic research as signaling theory. This theory explains that when information asymmetry exists, entrepreneurs try to signal quality through indicators such as innovation, patents, partnerships or early achievements.
But signaling theory often assumes that investors interpret these signals in similar ways. This study suggests that this assumption is not always valid. Investors are not a homogeneous audience. They arrive with different contexts, different levels of familiarity with the market and different capacities to verify what they observe.
The Israeli investor operates within a local system they know well. Even if they are unfamiliar with a specific company, they understand the culture, working style, pace, regulatory environment and entrepreneurial language. They may also have networks that allow them to fill in missing information through conversations, informal checks or general impressions of the ecosystem.
The American investor, by contrast, even if highly professional, must rely more heavily on formal, written and measurable information. When innovation is high but transparency is limited, they may struggle to determine whether they are seeing a genuine breakthrough or simply something difficult to evaluate because they lack familiarity with the local context.
In this sense, Israel is perceived not only as an innovative country, but also as one that can feel distant in terms of verifiability. The issue is not that foreign investors distrust Israeli entrepreneurs. Rather, they are forced to make assessments under conditions of greater uncertainty.
When innovation is high, meaning the technology is new and unfamiliar, they feel even less certain. Innovation increases potential, but it also increases risk, especially when there is no clear way to show that the product works, that a real market exists and that the company can execute.
The main conclusion is that Israeli entrepreneurs cannot assume innovation alone is enough to impress foreign investors. On the contrary, the more innovative the technology, the more it must be accompanied by trust mechanisms: structured data, financial transparency, evidence of real usage, partnerships with recognized entities and documentation that reduces ambiguity.
With local investors, the story and innovative vision may be the primary tools. With foreign investors, that same story must be supported by an infrastructure that enables verification. Otherwise, it may be perceived as an appealing but risky promise.
Dr. Eliran Solodoha The study also highlights a broader point that extends beyond entrepreneurs to the national level. If Israel wants to continue attracting foreign capital, it cannot rely solely on its reputation as the startup nation. It must build infrastructure that reduces information asymmetry for international investors: accessible reporting frameworks in English, reliable platforms for presenting company data, systems that standardize information and processes that connect foreign investors with local partners who can interpret conditions on the ground.
In other words, to turn innovation into capital, innovation must also be made transparent.
Ultimately, the study’s most important insight is that innovation is not only an advantage. It is also a test of trust. A local investor may see it as an opportunity that justifies risk. A foreign investor may see it as a source of uncertainty that requires stronger proof.
This is not a criticism of foreign investors. It is a reminder that investment decisions are based not only on the quality of the product, but also on how its story is perceived by those evaluating it.
Israeli entrepreneurs seeking to succeed in international markets must therefore understand that the question is not only how innovative they are, but how effectively they can make their innovation understandable, measurable and trustworthy.
Dr. Eliran Solodoha is a senior lecturer and head of entrepreneurship research at the Peres Academic Center