Visas for Venture-Backed Immigrant Entrepreneurs
Myth: Immigrants need to be better entrepreneurs than native-born entrepreneurs to justify a startup visa program. Reality: Recently several influential people advocated a program to grant visas to foreign-born entrepreneurs interested in starting high potential businesses in the U.S. Last week Paul Kedrosky of the Kauffman Foundation and Brad Feld of the Foundry Group wrote an opinion piece in The Wall Street Journal, and entrepreneur turned academic Vivek Wadhwa also wrote a Bloomberg BusinessWeek opinion column to support such a program. According to Wadhwa, the startup visa program would work as follows: "Suppose a talented engineer who is not a U.S. citizen has a great idea for a new type of search engine and wants to start a company. This entrepreneur wants to start that company in the U.S., where venture capital markets are the most mature, intellectual property laws are strong, and the talent level is high. It turns out the would-be founder's search engine idea is actually very good. So a qualified U.S. investor decides to put real money—say, $250,000 to $500,000—into the startup. That investor could nominate the potential founder for a Founders Visa while also making a formal commitment to fund his or her company." I agree with the idea, but think its advocates should change their justification for it. Kedrosky and Feld argue that we should give visas to immigrant entrepreneurs because (1) a lot of successful companies were founded by immigrants, (2) immigrants are disproportionately likely to be high-tech entrepreneurs, and (3) immigrant entrepreneurs create jobs. These arguments are both unconvincing and unnecessary. Flaws of ThinkingThe fact that a lot of successful companies are founded by immigrants doesn't mean anything. It doesn't mean immigrants are more likely than the native-born to found successful companies. It just means it happens. But lots of people from Texas, nearsighted people, people who attended state universities, and people who like to watch basketball on television have founded successful companies, too. Moreover, just because that group forms a lot of companies doesn't mean we need to provide policies to increase that activity. A lot of successful companies were founded by white men. That doesn't mean we should adopt specific policies to encourage company formation by white men. Kedrosky's and Feld's second argument is also flawed. Immigrants are not disproportionately likely to run their own businesses. Using data from the Current Population Survey conducted by the Bureau of Labor Statistics and the Census Bureau, Steve Hipple showed that the foreign-born are actually less likely to be the self-employed heads of incorporated businesses than the native-born. (They are also less likely to be the self-employed heads of unincorporated businesses.) Crucial SBA StudyAccording to a report by David Hart, Zoltan Acs, and Spencer Tracy recently released by the Small Business Administration, immigrants are more likely than the native-born to head high-tech businesses. But, the authors find, immigrants start high-tech businesses in proportion to their share of the science and engineering workforce. Because people are more likely to start companies in industries in which they work, and those who work in high-tech industries are more likely than those outside to start high-tech companies, immigrants are more likely than native-born Americans to found high-tech companies because they are more likely work in science and engineering jobs, not because immigrants are more likely to become entrepreneurs. Kedrosky and Feld's third argument is that immigrant entrepreneurs create jobs. Sure. But so do native-born entrepreneurs. Moreover, there's no evidence that immigrant entrepreneurs create more jobs than native-born entrepreneurs. The Hart report shows that high-tech companies founded by the native-born and immigrants perform similarly. In short, the evidence doesn't support a policy of encouraging immigrant entrepreneurship on grounds that immigrants are better entrepreneurs than the native-born. But that doesn't mean the startup visa is a bad idea. The policy makes sense if (1) the visa program would move successful entrepreneurs from other countries to the U.S., and (2) if the entrepreneurs would provide more economic value than others seeking to get the same visas. Bringing Jobs Back to the U.S.If the average high-tech entrepreneur who raises external capital is a job-and-wealth creator (something a lot of data support), the startup visa policy is justified on grounds that it will move jobs and wealth from the home countries of the entrepreneurs (where they will operate in the absence of the visas) to the U.S. (where they will operate if they get the visas). Even if no more wealth and jobs were created by having the companies in Indianapolis rather than in Bangalore, America will get more of the jobs and wealth. And that should be a national policy goal. In addition, high-tech entrepreneurs who have raised external capital will probably create more jobs and wealth than others in the visa queue. This is not necessarily because entrepreneurs create more wealth and jobs than employees—the same immigrant might provide even greater value at Procter & Gamble (PG) than in a Silicon Valley startup—but because high-tech entrepreneurs who have raised external capital tend to be more educated and talented than the average immigrant. And encouraging immigration by the educated and talented will have more economic value than encouraging immigration by the average immigrant. My reason for challenging the justification of the startup visa program is twofold. First, you don't want a good program to be justified on the basis of weak arguments. If opponents of the startup visa program—and there will be opponents if it gets traction—can poke holes in the reasoning, then the program might be sunk by well-reasoned challenges. Second, "the immigrants are better" argument is bad politics. People are much more likely to be persuaded that we need the visa program to take wealth and jobs away from other countries than because Americans are worse entrepreneurs than foreigners.