Many foreign-born techies in the U.S. and abroad are pinning their entrepreneurial hopes on the passage of a bill, sponsored by Senators John Kerry (D-Mass.) and Richard Lugar (R-Ind.), to create a startup visa. Tech-industry notables such as Paul Graham, Eric Ries, Brad Feld, Fred Wilson, and David McClure have lobbied for this. I, too, lent this my support. In fact, I have been advocating such a visa since 2007 — when my team’s research revealed that 52% of Silicon Valley’s startups from 1995 to 2005 were founded by immigrants. We also learned that a million skilled workers and their families were stuck in “immigration limbo” and that many were beginning to return home—causing America’s first brain drain.
But, as I wrote in my Bloomberg BusinessWeek column, I fear that the Kerry-Lugar bill will get approved — with overwhelming support from both parties. Our leaders will declare victory and claim that they have made the U.S. more competitive. This will not, however, produce the expected startup activity; it won’t give our economy the boost it desperately needs. That’s because the bill is far too limited. And, given the divisive nature of the current political debates about immigration, this may be the only immigration bill that gets passed until way after the next elections — by when it will be too late.
The Startup Visa Act grants a temporary work visa to any foreign-born entrepreneur who is able to obtain an investment of least $100,000 from a venture capitalist or a qualified “super angel” investor in an equity financing of not less than $250,000. To gain permanent residency, 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 annually.
The bill makes the wrong assumption that all startups raise angel or venture capital. As my team’s research has shown, nine out of 10 successful entrepreneurs don’t. Kauffman Foundation’s analysis of the Inc. 500 list of the fastest-growing private companies showed that the vast majority (84 percent) of these companies hadn’t raised any venture capital. And the economics of starting a tech company have changed. Before, it cost hundreds of thousands, if not millions, of dollars to build a software product. Now, first versions of sophisticated, game-changing technologies such as Facebook, Twitter, and Groupon can be built within weeks or months — for tens of thousands of dollars. Startups need venture capital only when they are ready to scale, which is usually two to three years after they have perfected their technology and their business model.
The Startup Visa Act requires foreign entrepreneurs to go begging to super angels and VCs — whether they need their money or not. And regular angel investors aren’t good enough; these must be “super angels”: U.S. citizens who have made at least two equity investments of at least $50,000 every year for the previous three years. Even one of the Valley’s most notable and successful investors, Jeff Clavier, doesn’t qualify as a “super angel”, because he is not a U.S. citizen.
Now think about this: do we want the same investors who are negotiating valuations and other terms with fledgling entrepreneurs to also have the power to make life-changing decisions about whether they can live in the United States? Investors already have too much power over the entrepreneur, and they can be cutthroat in negotiations; I wouldn’t want them to also have power over my life and my family if I were in this situation.
A better model is the Startup Chile program (to which I am an advisor). The only criteria for being admitted to Chile and gaining a $40,000 grant are quality of talent and commitment of the founding team members; international market potential of the project; and the value of the applicant’s affiliated networks that will be injected into the Chilean entrepreneurship ecosystem. It isn’t rocket science; we could easily develop similar criteria for use in the U.S. …
Cross-posted from Vivek Wadhwa’s blog on Tech Crunch, where you can continue reading this piece.