This week, President Obama will turn his focus from budget sequestration to immigration. A new Kauffman Foundation report released last week argues that making 75,000 Startup Visas available for current holders of H-1B and F-1 visas who start companies could create as much as 1.6 million U.S. jobs in the next 10 years. Will Washington act or, if they cannot agree, throw the baby out with the bath water?
I have long argued alongside smarter Americans than me that we need immigration policies to release pent-up entrepreneurial activity among foreign-born people in the United States, who have in the past accounted for a quarter of all successful high-tech startups in the country. More recently, in 2011, 24 of the top 50 venture-capital-backed companies in 2011 were founded or co-founded by immigrants, according to the National Foundation for American Policy. The pressure on policymakers has increased in this regard from many sectors because of the rapid pace of improvement in other nations’ startup ecosystems which lure startup entrepreneurs and their investors.
In an often cited Kauffman Foundation survey study, for example, more than half of Indian respondents who indicated that they would be likely to start a business in the next five years believed their best opportunities for entrepreneurship were in their home country. Those could be the future Desh Deshpandes (see his story in this sketchbook). Some nations have even taken active steps to import entrepreneurs. Take the example of hundreds of Americans and others applying to start a business in Chile through the country’s competitive Start-Up Chile program, or Canada’s announcement that it will launch its own Startup Visa on April 1, 2013, to recruit foreign startup talent. At the Global Entrepreneurship Congress later this month, more than 130 countries will be present to sell the world on their favorable climate for willing entrepreneurs.
The political sensitivities involved with comprehensive immigration reform have made progress in the U.S. slow for reacting to this reality in high-skilled immigration. And the measures so far have failed short. The EB-5 visa reserved for immigrants who launch businesses in the U.S. is not only limited in availability but also requires that they bring with them $1 million (or $500,000 if the business is started in a low-income area). Anyone who knows anything about startups knows that 80% of them start lean and few, if any, have $1 million in cash in the bank. We have had bouts of hope of more sensible measures through bills introduced in Congress over the past few years (e.g. Startup Act 2.0 and more recently, Startup Act 3.0), but none have passed despite efforts by initiatives from investors and even local entrepreneurs themselves. So what is the economic cost of this delay?
It is very high. A Kauffman Foundation report released last week argues that the visa proposed in the bipartisan Startup Act 3.0 (making 75,000 Startup Visas available for current holders of H-1B and F-1 visas who start companies) could create as much as 1.6 million U.S. jobs in the next 10 years. The report, “Give Me Your Entrepreneurs, Your Innovators: Estimating the Employment Impact of a Startup Visa,” shows three different scenarios, assuming that Startup Visas become available in 2014:
- If immigrant-founded startups hire the fewest people required by the Startup Act, and applying company and employment survival rates from Census data, four-year- old Startup Visa companies would create nearly 500,000 new jobs after ten years. This equates to 0.5 percent of GDP, as computed using a methodology employed by the White House’s Council of Economic Advisors.
- Using Census data on average employment per firm (i.e. if these companies resemble average U.S. businesses), the estimate is that four-year-old Startup Visa companies would create nearly 900,000 new jobs after ten years. These jobs equate to almost 1 percent of GDP (around $140 billion per year).
- If half of the Startup Visa companies are technology and engineering companies, given that these types of immigrant-founded startups employ an average of 21.37 people per firm, the Startup Visa companies would create, at minimum, 1.6 million jobs over 10 years, or 1.6 percent of GDP (a $224 billion annual boost).
All three are sensible, conservative estimates that reflect the incentives embedded in the bill, namely: in the first year of business, the beneficiary entrepreneurs would be required to employ at least two full-time, non-family workers and to invest or raise an investment of $100,000 or more. Only if these requirements were met, recipients would be granted a three-year visa extension. If, over that three-year period, the business owner has hired, on average, one additional employee each year, the visa holder may apply for permanent residency status.
Many opinion leaders have voiced that the boost could be far greater than the most optimistic numbers in Kauffman’s estimates. This is in part because the researchers only estimated the jobs created by immigrant entrepreneurs while they were on the Startup Visa. The other impact not measured in the above report is the fact that most successful entrepreneurs start more than one company, not to mention that they usually later become angel investors and mentors who will help the next wave of firm creation. These are some of the reasons why experts like Vivek Wadhwa question the 75,000 limit for Startup Visas in the bill.
Changing that limit will be difficult. The Startup Act 3.0 covers several policy areas intersecting with entrepreneurship, which makes its path through Congress even tougher. It includes provisions that are not related to importing entrepreneurs, such as a capital gains taxes five-year exemption for investments in startups, a limited R&D tax credit for young startups less than five years old and with less than $5 million in annual receipts, and requiring cost-benefit analyses on federal regulations that have an economic impact of $100 million or more. The other chance for entrepreneurs’ visas is in the much-expected comprehensive immigration reform that President Obama will focus on soon. That legislation is likely to be finally signed into law this year, according to experts like Dane Stangler, the Kauffman Foundation’s policy and research director. In either case, legislation would fall short if it fails to create a new visa for the thousands of potential foreign-born entrepreneurs who are already in the country.
Immigrant-founded companies have an extraordinary job creation impact in the United States and the benefits of a Start-up Visa are now even clearer. Let’s hope this new data analysis convinces Washington that it is time to start focusing on attracting the world’s top entrepreneurial talent.