With the upcoming Presidential election, the debate will begin again on comprehensive immigration reform. Much of that debate will likely center on illegal immigration. But for those of us in the startup/venture world, it is the immigration policies related to skilled foreign nationals where the focus is most needed. The current rules and regulations that govern whether a skilled foreign professional can legally work in the United-States have an impact on the country’s ability to compete globally. If the U.S. wants to maintain its status as the world’s leading innovator, changes need to be made. The world’s leading innovator has an immigrant dilemma.
According to a fascinating study by the National Venture Capital Association (NVCA), over the past 15 years immigrants have started 25% of U.S. public companies that were formerly venture backed. In addition, more than 50% of the employment generated by U.S. public venture-backed companies has come from immigrant-founded companies including companies like Intel, eBay, Yahoo!, Sun Microsystems, Juniper, NVidia and Webex.
There is no question that immigrants have played an important role in driving many of the major innovations that have occurred in the technology, manufacturing and medical sectors—all important and fast-growing areas of the U.S. economy. But as the study demonstrates, the contributions are hardly inevitable.
There are signs that current immigration laws are inadvertently having a stifling effect on innovation. The principal visa used by startups to hire skilled foreign nationals is the H1-B. This visa can be used to employ a skilled foreign national for up to six years. It is important for U.S. employers because it is not practical to hire someone on a green card since the wait is usually 4 or more years. The problem is that Congress originally set a low annual limit for these visas back in 1990 and has increased their number sporadically since then. In almost every year of the last decade, employers have expended the entire quota of H1-B visas prior to the end of the fiscal year. And in most of the past few years, the visas were fully allocated prior to the start of the upcoming fiscal year!
For startups, CEOs and investors, the inadequate number of available visas has led to a number of problems. According to the NVCA study:
- Companies using H1-B visas said the lack of an adequate amount of visas had negatively impacted their company when competing against other firms globally
- Companies feel that the lack of visas for skilled professionals has influenced their decision to place more in facilities abroad
- More than two-thirds of immigrant entrepreneurs agreed that US immigration policy has made it more difficult than in the past to start a business in America
At ABS, we have seen these issues first-hand in portfolio companies. At times, CEOs have needed to hire engineers with specific skillsets but could not hire willing, qualified foreign nationals because there were no available visas. This is frustrating and counterproductive, as skills shortages lead to product delays which then cascade through an organization creating many other issues. This is not a good state of affairs if we want the U.S. to maintain its tech lead.
The restrictive policies on high-skill immigration are leading to more innovation happening outside of the U.S. To be sure, this is not caused entirely by U.S. immigration policy, but it is clearly a major contributing factor. In today’s fast-paced global economy, many other countries – not just a few – are vying for the brightest and talented individuals.
While the U.S. might be the first choice for most, it is no longer the only choice. And the alternatives are getting better and better as a result of continued advances in technology and the availability of capital globally. Increasingly, foreign entrepreneurs that would have started have in starting businesses in the U.S. are choosing to do so elsewhere. The result is that businesses that would have created a multitude of U.S. jobs, generated taxes for local, state and federal government and other benefits are foregone. This is unfortunate and short-sighted.
Of course, there is a balance needed to ensure that immigration policy is not unfairly taking jobs away from Americans. And there are valid concerns around this which should be addressed. But in the technology sector, there does not appear to be enough Americans with the requisite skills/experience to fill the jobs that are available (this brings up a whole separate set of issues relating to the status of math and engineering education in this country—alas, a topic for another blog).
In the end, a balanced approach to skilled foreign national immigration can be found that will eliminate the current frustrations of startups, their management and investors. Otherwise, we might need to get used to seeing the next Google, Facebook or Cisco coming out of Bangalore or Shanghai—with the U.S. watching from the sidelines.
What have your experiences been related to hiring skilled foreign nationals for your business? If you are on a visa and working for a startup, what has your experience been like? Are there other immigration issues relating to entrepreneurship that should be addressed?
Note: The NVCA Immigration study mentioned above, titled “American Made- The Impact of Immigrant Entrepreneurs” can be found here.