Research Paper by Sarah Selcer
In this paper I will discuss why Americans in the DMV area choose to invest in Israel. Through observations of two investment clubs in both D.C. and Maryland; formal and informal interviews with members of the clubs, leadership within the clubs, and the financial advisor to the clubs; and surveys of club members, I found that Americans in the DMV area choose to invest in Israel primarily because of a sense of Zionism or political connection to Israel.
The focus of my research is to answer the question "Why do Americans in the DMV area invest in Israeli companies?" This is a relevant question to study since many people today are investing in Israeli companies in addition to American companies, and the amount of literature on foreign direct investment (FDI) reflects ongoing interest in the subject. However, the drive behind these investments, particularly in regard to why companies from a specific nation are invested in, remains uncertain. Israel has the greatest number of start-up companies per capita in the world, and is recognized as the leading nation in innovation. In 2017 alone, Israeli tech firms raised $5.24 billion in capital.
For the purposes of this paper, I have conceptualized key terms in the following way. Investment is the action and/or process of investing money or capital for profit. Zionism is a movement where people support the existence and wellbeing of the State of Israel. To test my hypothesis, I have drawn on existing literature to divide motivations for investing in Israel into four main schools of thought: (1) religious motivation behind American investments to Israel, (2) political affiliation driving American investments to Israel, (3) American personal financial gains when investing in Israel, and (4) Israel’s reputation as the Start-Up Nation. In addition, I have selected 2 investment clubs in the DMV area as my research group: Habonim, an independent investment club located in Maryland, and Fistful of Shekels, part of a local synagogue located in the D.C. area. In the following sections of this paper, I will discuss the literature surrounding this topic, my hypothesis and alternate hypothesis, research methods and data sources, data results, findings and analysis, conclusions, and areas for future research.
My literature review is divided into 4 main sections, following the major schools of thought about motivations for Federal Direct Investment (FDI) in Israeli companies: religious motivation behind American investments to Israel, political affiliation driving American investments to Israel, American personal financial gains when investing in Israel, and how Israel’s reputation as the Start-Up Nation affects American investment. While conducting research I have found many gaps within the literature. Much of the literature discusses a sense of connection that motivates individuals when it comes to investment but there is not much conversation regarding American motivation in investment in general. Similarly, a lot of the literature that discusses a sense of connection to a country and investments categorizes investments as a type of tourism, and fails to consider the nuanced differences between investing in a company and visiting a country. Thirdly, there is an overall conversation regarding foreign direct investments but no conversation that speaks about American foreign direct investment into Israel in particular; this paper will investigate this specific relationship. In doing so it will highlight intricacies of motivations behind FDI that are often conflated or glossed over within the bigger picture. Lastly, literature investigating Israel’s reputation as the StartUp Nation is consistently published, but without expanding the conversation to explain its connection to FDI or American investment into Israel, which is certainly an aspect of that success that requires further scrutiny.
Religious Motives Behind Investing in Israel
This first category explains the role of religious American Jews and how and why they invest in Israel. In general, scholars within this school of thought theorize that American Jews, through community programing and religiously inspired events like Birthright, have formed an emotional connection to Israel. This suggests a kind of loyalty that could motivate FDI but is considered to be within the context of politics and tourism, rather than financial investment. Other scholars deal more specifically with religious motivation behind investment, but do not talk specifically about American individuals and Israeli companies.
One article attempted to explain how younger Jewish generations feel less connected to Israel than older Jewish generations and how that impacts investments. Sheskin tested this theory by looking at past data and surveys from 37 Jewish communities and measured the level of attachment by number of visits to Israel, willingness to send one’s child to Israel, emotional attachment to Israel, or how much Israel encourages one to donate to Jewish organizations.5 This specific article discusses the importance of a good American-Israel alliance within the Jewish community but does not discuss American non-tourist investment into Israel. However, Sheskin was unable to come to a conclusion regarding her research.
Another article looked at how religious motivations move people to invest in countries in general through empirical research.7 Authors Fourie, Rosselló, and Santana Gallego explain that people invest where their heart is and their heart is usually moved by religion.8 The article specifically discusses investments in terms of tourism rather than American investment into Israel through Foreign Direct Investments.
Both these articles discuss religious motivations behind tourism, charities, and giving back to the world. Although the articles suggest this type of motivation may also be driving investment, they fail to answer my research question conclusively. They are a good starting point for my research, but there is still a long way to go. I plan on answering my questions by filling in the gaps through my own research.
Political Affiliation When Investing in Israel
Many scholars have investigated reasons behind why people invest in countries other than their own. This next section will help explain research on political motives behind Foreign Direct Investments. In general, this school of thought posits that in order to see a political goal realized (strengthening ties with allies, the success of a nation they feel politically affiliated with), FDI is used as a kind of bargaining chip and political influencer. In the context of American investment in Israel, some scholars have made the case for a kind of created political affiliation similar to the religious one Sheskin studied.
One scholar explains the idea of Zionism as a reason why Americans invest in Israel. Shumsky describes American investment in Israel as Zionism through tourism. A clear difference between my research and Shumsky’s research is the definition of investment. Like many other scholars Shumsky describes investment as a form of tourism (visiting said country in order to boost their economy) while I want to investigate FDI, which I define as a direct monetary deposit into a foreign economy through means of investing in a particular company. This focus on tourism over FDI reveals gap in investment literature I hope to fill.
Scholar Lainer-Vos uses a comparative analysis of Ireland and Israel to argue that investment itself is a political act, by highlighting the idea of Nation-building through pre-paid bonds. This study helps measure how invested the Jewish American diaspora within United States is in Israel. Lainer-Vos explains how the Israeli bonds bought by Americans offered these Americans another way of being financially and emotionally invested in Israel, which in turn creates a sense of national attachment. This study explains a lot about forming a sense of connection through investment. However, the article itself looks at bonds invested in the Israeli government as a whole, rather than my focus: specific Israeli companies.
Another study analyzes the important relationship between the United States and Israel in terms of economic investments. Scholars, Rosenberg, Brichkin, and Bernstein dissect the pros and cons of investing in Israel as a whole country rather than individually. The scholars come to the conclusion that the small investment that the United States makes in Israel has a great deal of positive outcomes and benefits. There are gaps in this study because the authors discuss American investments to Israel on a larger scale rather than on a personal or company level.
Lastly, scholar Butler-Smith examines the differences between Americans investing in Israel when the country was first created to Americans investing in Israel today. Butler-Smith explains and encourages American investment in Israel, but fails to discuss why Americans should invest, the importance of investing, or the outcomes and impacts of investing.
Considering both of these schools of thought, it is clear that there is a tangible sense of connection and obligation to Israel from Americans, similar to the conclusions of scholars championing religious motivations suggest. However, none of these articles directly explain why this pattern exists. These four articles are helpful to my research background, but do not give a complete answer to my questions.
Financial Gains Due to Investing in Israel
Very few scholars have explored the concept of individual financial gain driving American investments in Israel, despite this being generally considered a major motivation behind investment in general. Scholars Ramamurti and Hashai define Foreign Direct Investments (FDI) and the importance of FDI’s, which is helpful for my conceptualization of the topic, but do not discuss how Americans specifically can benefit from FDI’s or which of those benefits may be motivating causes. Although there is a chapter in the book that discusses “The case of Israeli high-tech service providers,” the chapter fails to address how or why people invest in Israel. Rather, it discusses how Israeli companies are sold on the international market. Another scholar explains how Israel has a hard time receiving American FDI’s compared to the United States and Europe due to the location of the country and the regions constant state of war. I hope toexpand upon the research in this field by considering how the intricacies of financial regulations and benefits of FDI to Israel may be driving American investors’ choices.
Reputation of Start-Up Companies in Israel
Many people know Israel for its innovative technology. For this reason, they choose to invest their money in a little country in the war-torn Middle East— not the typical characteristics of what might be considered a safe or worthwhile investment. Scholars, however, point out that this reputation is quite strong. It drives financial interest in the success of Israeli companies, both figurative and literally. Sharir and Lerner discuss the success of venture capitalist firms in Israel. The scholars used field studies in order to measure success through 57 different surveys and interviews. The scholars interviewed entrepreneurs, team members, board members, customers and competitors, as well as participant observations. Sharir and Lerner discuss success within different Israeli companies, but their study lacks an American-Israeli investment connection.
Another group of scholars discuss Israel’s success story in depth. Senor and Singer explain how Israel has the highest number of start-ups per capita in the world. According to Senor and Singer, Israel attracted 2.5 times more venture capital than the United States and 30 times more than Europe in 2008 alone. This article represents some gaps I hope to fill, because it fails to discuss why this figure exists. It still asks the question: how does this reputation of Israeli success influence Americans to choose to invest in Israeli companies?
Scholars Beyar, Zeevi, and Rechavi discuss Israel’s successful life science companies and research that has generated tons of growth within the Israeli economy in addition to the advancement of other scientific start-up companies. According to Beyar, Zeevi, and Rechavi, every government-invested dollar has generated an additional five dollars in the private sector. Lastly, 60% of the 1600 biotech and pharmaceutical companies in Israel have successfully fundraised $4 billion from the private sector. Beyer, Zeevi, and Rechavi have a compelling argument for how Israel is so successful in the life science arena, but their argument lacks how American investments play a role in that success story.
Lastly, scholars Ramamurti and Hashai describe how Israel is known for its hightech startups and entrepreneurial environment. The scholars explain how Israel’s new startups are sold on the international level almost immediately after they are born. Although this is a clearly trackable occurrence, like other studies about the phenomenon, the argument does not discuss how American investment relates to or is driven by that success.
There is a rich field of literature on the elements likely to influence American investments in Israel, which will support the hypothesis and concepts driving my paper. Some schools of thought investigate connections Americans have to Israel, whether religious or political. Others look at the reputation of Israeli companies and the economic forces influencing FDI. However, both cases leave clear gaps in the field in regard to my question. For a start, much of the research focuses on tourism-as-investment, or investment at the country/political level. Scholars have yet to investigate how emotional ties to Israel impact financial decisions – or if political and religious ties are a motive or complement to individuals’ investment decisions. Research on FDI itself tends to be general, and questions about unique relationships like American investment in Israeli companies remain unanswered. While the discussion of Israeli success seems to indicate an obvious motivating factor in American FDI, that connection has not been highlighted in the scholarship on the subject. These are the gaps my research seeks to fill. Furthermore, the schools of thought related to FDI and American investments (of all kinds) in Israel remain isolated from one another; I hope to use the juxtaposition of these theories to help answer my research question. Finally, much of the literature on the topic uses large-date quantitative methods, whereas my qualitative small-group research will be able to better analyze the nuances of individual people’s social and political motivations. This paper will use small-n research to highlight this nuance, which is certainly impacting FDI and must be considered.
Theory and Hypothesis
Through the literature and scholars that discuss the reasons behind investing in Israel topic, it’s clear that there is a real motivation behind investments but the exact motivation is not presently understood. I believe that the reason is more complex, and that theories from most schools of thought overlap, including a combination of political connection to Israel, financial incentives, Israel’s reputation as the start-up nation, and religious duty. My hypothesis is that Americans invest in Israeli companies because they are politically and/or religiously motivated by Zionism to support Israel. On the other hand, there is a chance that the majority of investment is due to financial benefits. Another important fact that could play a role in the decision to invest in Israel is the idea that Israel is commonly known and considered the start-up nation. My alternate hypothesis is that Israeli companies tend to offer a good return on investments, which makes people financially motivated to invest in Israel.
The literature shapes my ideas because it seems like the scholars in the field cannot come to a conclusion regarding why Americans choose to invest in Israel. However, I believe that the answer is simply that people feel a duty to support Israel and do their part to see that it thrives. In other words, Zionism. Through my research, I will likely find that since the clubs are both predominantly Jewish and have a plethora of older members, the older members will feel a sense of urgency around supporting Israel because many of them either were alive when Israel became a nation 70 years ago or have seen Israel struggle in its beginning years as a nation. If this idea is true, I will be able to prove my theory and hypothesis.
Research Methods and Data Sources
I selected small-n case comparison as my research method, because it allowed me to collect data firsthand from subjects in the area and gather in-depth research about their subjective motivations for investing in Israel. For my field research, I held a focus group with each investment club (Fistful of Shekles and Habonim) where I observed their meetings, conducted formal interviews with club members, as well as created a survey focusing on individual member motivations behind investment. During the semistructured focus group, I was able to ask the members of the clubs that were present their reasoning behind joining the clubs, as well as investing in Israel overall. I created a combination of a focus group and observation for 5 members of the Habonim Investment Club. I first observed the official meeting and took notes, and then following the meeting I was able to ask the question of a) why the members present chose to be a part of the club and b) why do they choose to invest in Israel. Since the members of the club were elderly, there was a lot of conversation around everyone’s responses but the main idea that I gathered was they choose to invest firstly to support Israel, and secondly, to gain financially.
I conducted the same type of observation for the Fistful of Shekels Investment Club. I first observed the meeting of 17 members, and then followed by asking them why they are a part of said investment club and why they choose to invest in Israel. The members of this club varied in age, and most responses consisted of, “It’s a way to learn and stay involved in Israel.” In addition to focus groups and observations, I conducted informal interviews with the board members and presidents of each investment club. By doing so I was able to find out the demographics of the clubs, how the clubs began, why people joined the clubs, how much it cost to join the club, how many companies each investment club invested in, whether they only invest in Israeli companies, and if people invest outside of the clubs based on information from the club. In addition, I was able to interview the financial advisor of both investment clubs. She was able to explain to me more in depth her role within the clubs, how they choose to invest, and what they have decided to invest in. Finally, I sent out a survey to both clubs and received 30 responses in total. The survey consisted of 6 questions: What investment club do you belong to, what is your age, have you visited Israel before, do you belong to a synagogue, why do you belong to an investment club, why do you invest in Israel. Through the surveys I was able to get a picture of individuals within the clubs, and find real responses with real quotes.
Through my connections at the Israeli Embassy, I was able to find the Maryland Israel Development Center (MIDC) which focuses on bringing the headquarters of Israeli companies to Maryland through tax subsidies and government incentives. I was introduced to members of both investing clubs through the MIDC. The clubs agreed to allow me to sit in on a typical club meeting and interview several club members, collecting the required data for such a study should be feasible given within the allotted time for the study. The two clubs are worthwhile candidates for comparative study because while both clubs invest in Israeli companies, Habonim Investment Club requires a lower initial investment while Israel Investment Club requires a high initial investment from its members. In addition to the fee difference, Habonim investment club is a stand alone club that is not a part of any organization, while the Fistful of Shekels Club is associated with a synagogue. The different locations of the clubs (Maryland or D.C.) could also affect what companies they invest in and the reasons for investing in those companies.
Both clubs are beneficial to look at when testing my hypothesis because Fistful of Shekels has a religious connection, which is a good way to test if the members are religiously motivated to invest, while Habonim was an individual club with no standard religious motivation towards investments. Secondly, Habonim has relatively older members then Fistful of Shekels, a factor that can affect one's political duty or Zionistic motivations behind investing.
In order to control both cases I asked the same questions for both investment clubs, as well as took notes during observations, focus groups, and interviews and then filled in blanks after each meeting. Some questions which I asked both groups were:
What year did the club start? Who started the group?
What are the club demographics (how old is the youngest/oldest member)?
Does the club only invest in Israeli companies? Do people invest outside the club based on the information discussed within the club?
Are all club members Jewish?
Are people more conservative or religious?
Are there people from outside the congregation that are part of the club?
Does your club work with any other clubs in the area?
If so, are they Israeli investment clubs as well?
In your opinion, why do you think people choose to be in your club and invest in Israel?
Through survey responses I was able to develop a potential answer to my research question. The following percentages include all 30 responses, not specifically by club (see Figure 1). The average respondent age was 68 years old. I found that all 30 respondents had visited Israel at least one time, and the majority of respondents had been 2-3 times. This makes me believe that in order to choose to invest in Israel, you must have to visit Israel to feel a sense of need to be involved in the startup aspect of the country. Secondly, I was able to find that 26.67% of respondents do not belong to a synagogue, while 16.67% of respondents replied “other”. More than half of respondents belong to either a reformed or conservative synagogue.
I coded the final 2 responses of “Why are you a part of said investment group?” and “Why do you invest in Israel?” into the four schools of thought: Support for Israel, financial gains, Israel’s reputation, religious duty. When tallying up the responses and calculating the percentages, I did not include the responses that overlapped into both categories; responses that overlapped went into the category the respondent mainly or primarily explained. In addition, all calculations include all 30 survey respondents, and they are not split up by investment club. Through the questions and responses (see Figure 2), I found that 53.4% of respondents invest in Israel in order to support Israel. The second largest group was 20% of responses, which said they invest in Israel to gain financially. Thirdly, 13.3% of respondents invest in Israel because of Israel’s positive reputation in the industry. Fourthly, only 10% of respondents said that they invest in Israel due to a religious duty. Lastly, there was one respondent that stated he did not know if he could support Israel due to poor governmental decisions. This respondent made up 3.3% of the survey results.
Findings and Analysis
The data findings from my research supports the hypothesis that Americans’ primary reason for investing financially in Israel is to support Israel as a country and ideological symbol. The second most prominent reason is for financial gains through investments, followed by Israel's positive reputation as the startup nation. The data revealed that a sense of religious duty was the least impactful reason members chose to invest in Israeli companies. In some cases, the idea of Zionism and religious reasoning behind investing in Israel overlapped. In order to further analyze my results, I compared data from the two clubs.
The chart above shows the individual differences of each club, and how they affect members’ decision to invest in Israel. The average age of Habonim Investment Club is 72, while Fistful of Shekels Investment club is 62. All respondents of both clubs had visited Israel at least one time. 100% of the Fistful of Shekels Investment Club belong to a synagogue while only 64% of the Habonim Investment Club members belong to a synagogue. 32% of Habonim members choose to invest in Israel in order to support Israel in addition to gaining financially, while this was the case for 60% of Fistful of Shekels members. 8% of Habonim members invest in Israel for religious reasons. 48% of Habonim members invest in Israel solely for Zionistic reasons. 8% of Habonim members choose to invest due to Israel's positive reputation as the Start-up Nation. 40% of Fistful of Shekel members invest in Israel for a combination of support for Israel also known as Zionism, financial gain, and lastly Israel's reputation. 4% of Habonim members listed other reasons for investment in Israel, such as tradition.
These statistics for each individual club show that 48% and 40% of members from each club (respectively) invest for some kind of motivational support of Israel, Zionism. Although most people invest to support Israel, it is clear that support involves a combination of financial gains and respect for reputation. These specific cases show a variety of opinions regarding investments in Israel. Since members of both clubs range dramatically in age and belonging to a synagogue, it allows for a variety of opinions.
Overall, I found people feel a sense of political and religious connection to Israel, which creates a sense of urgency around Zionism. One of the ways Americans choose to make an impact is to invest money in Israeli companies, which in turn supports Israel’s economy and the overall strength of the country. Investing in Israel not only supports the state financially, but also gives back to the people of Israel and the world at large. As the scholars in the field discussed, there is not a clear reason why people choose to invest in Israel-- rather, it might be a combination of reasons, such as the feeling of needing to support Israel (Zionism), financial gains, and Israel's positive reputation. There were very few members of clubs that said that they feel a need to invest in Israel because of a religious duty. Through observations, interviews, and surveys, I was able to find that my hypothesis was at least partially correct. People choose to invest in Israel because they want to support Israel, and investing in Israel supports the Israeli economy as well as the reputation of Israel. After analyzing the data, I now believe that majority of people choose to invest in Israel primarily to ensure Israel’s well-being and existence through investment, though bolstered by Israel's positive reputation as the start-up nation, and potential great financial gains.
To continue to expand my research and avoid the biases inherent in small group studies, I would need to look at more investment clubs in the area. Although I strove for both internal and external validity, my ties to the state of Israel could have led to some implicit bias. Lastly, if someone were to repeat the study they might decide to aggregate data differently, which would yield slightly different results. Israel has been used in several case studies to understand how and why so many people have such a connection to the country and are willing to send so much money for the well-being of the country. Some areas for further studies could be exploring how this phenomenon can be implemented for other countries that wish to cultivate a connection to their diaspora to better their countries financially and politically.