Who sees the risk? Innovation, information asymmetry, and investor origin in startup evaluation
Eliran Solodoha
Abstract
Purpose Information gaps between entrepreneurs and investors often impede the flow of capital into young firms. This study aims to examine how perceived innovation shapes the relationship between information asymmetry and perceived risk and whether this process differs between local and foreign investors. Design/methodology/approach A survey experiment was conducted with 151 investors who evaluated the same startup scenario. Participants rated the venture’s innovativeness and riskiness on seven-point Likert scales and indicated whether they were Israeli (local) or American (foreign). Regression models tested the relationship between perceived innovation and perceived risk and the moderating role of investor origin, while controlling for demographic and experiential variables. Findings Empirical evidence reveals a conditional relationship between perceived innovation, information asymmetry and perceived risk that depends on investor origin. While local investors reported lower overall levels of perceived risk than foreign investors, the moderating role of innovation differed systematically across the two groups, highlighting receiver heterogeneity in signal interpretation. Practical implications Entrepreneurs should emphasize innovation when pitching to local investors and provide stronger evidence and transparency when approaching foreign investors. Policymakers and intermediaries can help reduce cross-border information gaps by promoting transparency, improving information accessibility and fostering networks that enable knowledge exchange. Originality/value This study empirically demonstrates that the relationship between innovation and perceived risk is conditional on the informational environment of the receiver. By positioning perceived risk as the outcome variable, this research integrates insights from signaling theory and home bias perspectives while highlighting the importance of investor heterogeneity in entrepreneurial finance.
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.50 × 0.4 = 0.20 |
| M · momentum | 0.50 × 0.15 = 0.07 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.