Startup Visa Act: Good But Not Enough

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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.

Wadhwa is a visiting scholar at University of California-Berkeley, senior research associate at Harvard Law School, and director of research at the Center for Entrepreneurship and Research Commercialization at Duke University. Follow him on twitter—@vwadhwa