Viewpoint

Startup Visa Act: Good But Not Enough


I have always been one of the staunchest supporters of the Startup Visa Act.

But I now worry the legislation introduced by Senators John Kerry (D-Mass.) and Richard Lugar (R-Ind.) may well get approved—with overwhelming support from both parties. Our leaders will declare victory and claim that they have made the U.S. more competitive. But we won't see the expected startup activity or get the economic boost our economy desperately needs. That's because the bill is far too limited and our competitors are advancing more rapidly than even I had predicted. And the chances are this will be the only immigration bill that gets passed until the next elections—when it will be too late to fix the bigger problems.

My team's research at Duke, UC-Berkeley, NYU, and Harvard revealed that in the 1995-2005 period, immigrants founded the majority (52 percent) of Silicon Valley startups. When we analyzed U.S. global patent filings, we learned that in 2006, foreign nationals residing in the U.S. contributed to 25.6 percent of its global patents and that this proportion had increased 337 percent since 1998. When we investigated the cause of the dramatic increase in foreign-national filings, we found that more than one million immigrants were stuck in "immigration limbo"—they were waiting for permanent-resident visas, but the available immigration quota was exhausted.

In 2007 we published a paper titled "Intellectual Property, the Immigration Backlog, and a Reverse Brain-Drain," which predicted that these frustrated engineers, doctors, scientists, and researchers would start returning from the U.S. to their home countries. This problem even merited a mention in President Obama's State of the Union speech.

Startup Boom—in China and India

The outflow of skilled talent is far greater than we had expected. No hard data are available, but anecdotal evidence is overwhelming. Tens of thousands of highly educated and skilled workers are returning home every year. You find these returnees in senior positions at leading companies in India and China and at the helm of a significant proportion of their tech startups. The returnees are teaching locals how to build world-class companies and how to innovate. India's engineering-services industry—which develops sophisticated products for Western firms in aerospace, automobiles, telecommunications, semiconductors, consumer electronics, and medical devices—is now a $10 billion business; it grew threefold in just four years. In China, returnees lead the top research labs and are beginning to make scientific breakthroughs. In both countries, entrepreneurship is booming, thanks to this unintended gift from the U.S.

The Startup Visa Act grants a temporary work visa to any foreign-born entrepreneur who is able to obtain an investment of least $250,000 from a U.S. angel or venture capitalist. To gain permanent residence, the entrepreneur must create five new U.S. jobs within two years, raise more than $1 million in venture capital, or generate sales of more than $1 million.

A few years ago, this would have opened the floodgates to foreign startups. The world's best and brightest were queuing up to enter the U.S., and plenty of investment capital was available here. Today, entrepreneurs in countries such as India and China see greater opportunities at home. Witness the situation with the controversial H1-B visas: in previous years, such tech companies as Microsoft (MSFT), Google (GOOG), and Intel (INTC) begged Washington to increase the available numbers, but so far we haven't even exhausted the 2010 quota. Previously, foreign students—who dominate our graduate engineering and science programs—stayed by default in the U.S. after graduation. Now the majority return home.

Is Venture Capital Necessary?

Ask any entrepreneur in Silicon Valley, and you'll likely hear how hard it is to raise angel or venture capital. Locals have a difficult time raising small amounts of money for their startups. For a foreigner, the hurdles are higher. The odds of an entrepreneur in India or China knowing whom to approach to raise capital, or having any success in persuading someone in the U.S. to invest $250,000, are slim to none.

And angel or venture capital isn't as important as investors will have you believe. My team's research determined that nine out of 10 successful entrepreneurs don't receive this type of capital. Kauffman Foundation's analysis of the Inc. 500 list of the fastest-growing private companies showed the same: The vast majority (84 percent) of these companies hadn't raised any venture capital.

Changes in technology have also changed the economics of starting a tech company. Before, it would cost hundreds of thousands, if not millions, of dollars to build a software product. Now, sophisticated, game-changing technologies such as Facebook, Twitter, and Groupon can be built within weeks—for an insignificant cost. It usually takes a year or two to test these technologies with customers and perfect them. So the $250,000 and $1 million thresholds don't make sense.

The Kerry/Lugar Startup Visa Act is still a good step forward, better than nothing—but it is a small step. At a time when we should be opening the doors to anyone who wants to come to the U.S. to create jobs, we have bolted ours shut.

Vivek_wadhwa
Vivek Wadhwa is vice president of Academics and Innovation at Singularity University, Fellow at Stanford Law School and Director of Research at Pratt School of Engineering at Duke University. You can follow him on Twitter (@wadhwa) and find his research at wadhwa.com.

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