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Flaws in the hype around Startup Visa Act

Tuesday, March 15th, 2011

Vivek Wadhwa wrote an article yesterday in BusinessWeek, Startup Visas Could Boost U.S. Entrepreneurship, in support of the proposed Startup Visa Act. The article purports that the Startup Visa bill, if approved, will result in “thousands of new startups”.

After you have read the BusinessWeek article, I suggest you also read Vivek’s brief summary report on skilled immigration statistics.

As outlined in the Business Week article, the summary of the legislation in itself has quite a few conditional clauses. I have to assume the detailed legislation that would go into effect, will have more specific gotchas. I am not sure how they arrived at all the numbers but within the boundaries that they have defined, I do not think we will see thousands of new American jobs – which is the goal of this legislation. It might create a few hundred American jobs, at best. We all can certainly pray for a Yahoo! to emerge out of this.

Note, I agree with his assessment of the immigration limbo (last but one paragraph in the article) on how skilled workers are jailed in the visa system, waiting for permanent residency. In my humble opinion, tying the skilled worker immigration fiasco with the Startup Visa Act is not entirely logical. I find certain flaws in the arguments and assumptions that Vivek is making in support of Startup Visa Act.

First, if an immigrant in the US has a business idea and wants to start a venture around it, they will find a way to do it. If there are legal ownership issues, they will find a resident or citizen partner to work with them. If someone landed in the US yesterday as an immigrant and dreamed up a brilliant idea last night, what they need this morning is money to make it happen! In its absence, they have to work their rear off through the network of known people to fund it. If this individual is passionate and aggressive, she will somehow find and pitch to VCs or enter one of the scores of startup / business plan competitions out there. As long as they can stay in the US legally, they will continue to look for ways to startup their idea. Case in point here: How Archana Patchirajan, who moved to the US only in 2004, launched her idea, founded a company with two other friends and secured funding from BMW.

As a matter of fact, I had gone through the process of forming a business so we could open up a retail franchise (this one) in our town in New Jersey. If things had gone right, we would have created at least 5 American jobs. We didn’t pursue it because the bank insisted a higher proportion of startup funds from our personal savings than we could pull. The accountant, attorney, and the bank executive who helped us didn’t question once about my immigration status – which was, and still is, H1B (very last stage though!).

So, as long as you are a legal immigrant, starting or owning a business in the US is not impossible. There may be a few immigrants who would take advantage of the Startup Visa Act, but it will not magically make thousands of skilled immigrants sprint overnight to Silicon Valley.

Second, the Kauffman report says

…India and China are racing ahead as centers of research and innovation. Further research may confirm what seems likely—that returnees from the United States are increasingly fueling this growth. Our interviews reveal these returnees typically went home because they saw tremendous opportunity in their home countries.

Greatest prospects for skilled labor is elsewhere

I would caution that anecdotal statement is somewhat misleading. Many of my friends have returned to India in last few years. A few of them returned specifically because they didn’t get a green card soon enough and got sick of being stuck with same employer and same job on a H1B visa. But the telling story is: Almost all of them returned to India, because India is the damn land of opportunity at the moment. They find wider range of jobs, faster career growth, better titles, higher pay in some cases, almost the same quality of life as in the US. In essence, they are simply as opportunistic as they were when they came state side. Let’s be clear: not everyone returning to India is starting a company there. I don’t have any research to back up that point but so is the quote above. Some returnees indeed start business there, immediately or eventually, yet the majority of India’s recent entrepreneurial growth is purely organic (read this and this). Internet boom and new media has opened up access to know-how and inspiration for all Indians, while India’s younger generation is doing the heavy lifting by embracing the culture of entrepreneurship.

On the other hand, American is wobbling, majority of industries have negative or stagnated growth, American corporations themselves are betting on their firm’s growth in International markets. For heaven’s sake, Chinese, Brazilians, and Indians are returning to their country because that’s where the greatest hope for the skilled person’s growth and prosperity is. Not because that’s where the next Silicon Valley is.

Third, if the Startup Visa were to “open the flood gates” (it won’t, but glad if I am proved wrong), it will be for the benefit of and because of Silicon Valley’s elite. The legislation’s clause mandates

“The investor must be a qualified venture capitalist, a ‘super angel’ (a U.S. citizen who has made at least two equity investments of at least $50,000 every year for the previous three years), or a qualified government entity.”.

I don’t exactly understand the logic of this restrictive “investor clause” but I suppose it was to prevent misuse. We can speculate what that misuse could be, but, this clause, by design binds and favors the Venture Capital community. That is good if some Venture Capitalist already knows you personally and can’t wait to cut a cheque in your idea’s name. If you don’t know anyone, then take a bus to South By South West (SXSW) or shunt coast to coast looking for business plan competitions.

I suspect quite a few VCs out there know entrepreneurs outside the US that they would like to fund and bring over to Silicon Valley, for good reasons – mentor and hook them up with best of the valley to eventually make a ton of $$$. Indeed, if such a legal framework exists, I would do it too.

One statistic intrigued me the most in Vivek’s Kauffman report.

In 2006, foreign nationals residing in the United States were named as inventors or co-inventors in an astounding 25.6 percent of patent applications filed from the United States, a substantial increase from 7.6 percent in 1998. Foreign nationals also contributed to a majority of some U.S. companies’ patent applications, including Qualcomm—72 percent, Merck— 65 percent, GE—64 percent, and Cisco—60 percent. More than 40 percent of the U.S. government-filed international patent applications had foreign authors. These numbers did not include immigrants who had become citizens at the time of filing.

Vivek asks, “so, why weren’t they becoming U.S. citizens and filing patents as Americans?”. Great question. Once you come into the US in a skilled worker visa category, the queue to the permanent residency and citizenship is enormously long. The irony is the Dream Act, whose primary focus is illegal immigrants, is taking up all the air time leaving no time or will to make the path to citizenship faster for skilled, legal immigrants. I bet very many of them will go on to start or own small (and big) businesses, spurring job creation across America.

No doubt, we need more Start-Ups, Not Bailouts but it largely must come from inside America, not outside. The Startup Visa Act will create American jobs, but it won’t make a dent on the job market or economy. Unless, of course, the Gods answer Vivek’s wish and bless US with another Facebook economy of some sort to spring out of it.