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 advocatingsuch 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.

Let me explain the issues and suggest some solutions.

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.

As everyone in the tech world knows, VCs and angels have a herd mentality in investments. When location-based services are the next big thing, the investors fund dozens of Foursquare clones; when coupons are hot, the money goes to Groupon clones; when question-and-answer websites are in vogue, the zillions of Quoras get all the attention. What about an entrepreneur in France who wants to come to the U.S. to build a revolutionary new technology that these investors haven’t yet gotten excited about; or an Indian entrepreneur looking to develop a new water-purification system for the developing world? They are out of luck.

One way to fix the Kerry–Lugar bill is to remove the requirement for super angels and VCs to be the decision makers, and to lower the investment threshold to $100,000.

That is still a high bar, but not enough to keep out determined entrepreneurs. To prevent abuse, anyone on a startup visa should be precluded from working for any employer other than the startup itself—so that there is no chance of their “taking American jobs away” as the misguided anti-immigrant groups say foreigners do.

But maybe we don’t even need this legislation. There may be a simpler fix.

Silicon Valley-based immigration attorney Malcolm Goeschl says that Congress can just spell out what factors should and should not be taken into consideration by the immigration department (USCIS) in adjudicating all employment-based petitions. As

Goeschl explains, a sponsoring company’s size should not be one of these factors. There is no reason that a startup should face more barriers to hiring key employees on visas than larger and more established companies do, particularly when most economic growth in the U.S. comes from startups and not large companies. If fraud is a concern, the USCIS should employ a more precise detection and enforcement strategy than its current “carpet bombing” approach.  Congress should also clarify that a foreign national’s ownership of a company should not preclude him or her from being sponsored for a work visa by that company. Most importantly, Congress should enact measures to ensure higher quality and more consistent adjudications at the USCIS.  Although such corrective action is normally within the purview of the executive branch, the Administration has so far failed to rein in the USCIS’s unfair treatment of startups and small companies.

I discussed Goeschl’s ideas with two other attorneys whom I respect, and they concurred.

Charles Kuck, former president of the American Immigration Lawyers Association, believes that the USCIS is simply making life miserable for small businesses and startups with the way it is adjudicating cases.  “It’s as if they do not WANT foreign nationals playing any role in job creation”, he says.  He believes that the Startup Visa, as it is presently defined, will suffer the same fate as the programs that have preceded it. It presently takes nine months to process the initial two-year conditional residency status for EB-5 investors (the program that the Kerry–Lugar bill is modelled on). Startup Visa processing may take even longer.

Richard Herman, author of a book titled Immigrant Inc. (in which I am profiled), says that the culture of the USCIS is not business friendly; that the adjudicators are not sufficiently trained to understand business documents and business realities; and that the mission of USCIS is not coordinated with the President’s goal of promoting job creation, innovation, and economic development.  If we fix this, we may fix the overall problem.

Unlike the bailouts and stimulus programs that are costing taxpayers hundreds of billions of dollars, a program to bring in the world’s best and brightest entrepreneurs will cost us nothing. It could lead to an inflow of billions of dollars in investment from abroad and create thousands of new startups across America and hundreds of thousands of new jobs. As well rather than fuel our global competitors as we are doing with our flawed immigration policies, we will make the U.S. more competitive.

All that I have discussed here addresses is the problem of admitting job-creating entrepreneurs to the U.S. It doesn’t address the backlog of one million foreign doctors, scientists, and engineers who are in the U.S. legally and in “immigration limbo”. They are waiting for permanent-resident visas—which are in extremely short supply. Tens of thousands are returning home, every year, to countries like India and China.  So are the brilliant foreign students who are studying at American universities. All of this is a big loss for the U.S. You can learn about this by watching this segment from CBS Sunday Morning.

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  • http://www.missi.com/ Peter Beddows

    Charles Kuck “believes that the USCIS is simply making life miserable for small businesses and startups with the way it is adjudicating cases. “It’s as if they do not WANT foreign nationals playing any role in job creation”

    The most likely explanation perhaps, like so many other situations where government intervention invariably suggests a very negative view of business, is that again we have a situation in which bureaucrats are dealing with the business environment issues instead of anyone who has actually had business ownership/management and/or p/l responsibility.

  • http://www.missi.com/ Peter Beddows

    I’ve come to see that you never do things by halves Vivek; reliably collecting and presenting excellent, relevant, aggregation of cogent points with supportive data. I have added my own thoughts from direct experiences related to this topic that I posted also on your related TechCrunch blog.

    A very good friend of mine, a British born and educated engineer who worked for Nokia in the UK, came to the US some 12 years ago to work for Nokia here. He brought his family with him. Bought a house. Kids went to school here. They paid taxes. They became established and productive: He is very highly regarded for his skills, knowledge, abilities and creativity, helping in the process of expanding Nokia’s communications network infrastructure here.

    Unfortunately, as we all know now, Nokia’s fortunes as a profitable business have been slipping: Came the point were, after other layoffs, my friend’s turn came. Had they applied for citizenship during those years here, all might now be well but he was here on an extended visa tied to his work with Nokia and getting citizenship takes time. Hence, because of the type of visa he held, he was not eligible for taking other opportunities here in the US that were offered to him that would have kept him and family here. Consequently, they have all now gone back to the UK ~ at great expense to them,… not the least because they could not sell their house in this market, and at loss to us as a country as yet another qualified resource we can no longer call upon to help in our efforts to keep our nation productive in this increasingly competitive world. Exactly the same situation impacted another highly qualified and skilled friend of mine and his family; they came here from Australia but had to return after a merger of the employing company left them high and dry.

    Both of these people and their families are just more examples of what I believe Vivek has really outlined in his article here in Tech Crunch as well as in the post on his own blog and in other postings and discussions he has published about this topic ~ we are losing out to an enormous degree by denying ourselves the advantages and benefits we should be reaping from this vast reservoir of high caliber talent in which we have all already invested heavily but which we will not allow to stay once qualified. How short-sighted and bizarre is that?

    It is my opinion, that perhaps those who decry the claims Vivek has outlined a) have missed the actual point he has been making, b) don’t actually understand the issues, perhaps not having actually experienced this type of situation and/or c) have their own agenda to obfuscate the reality of this mistaken, short-sighted immigration limitation policy.

    How many of us would think to invest our own hard earned dollars in any thing at all only to then throw it away as if it has no use to us? Why would we ever make such a stupid “investment”? In fact, why would we spend the money in that way at all because obviously that is not “investing” yet that is effectively what we are doing by educating foreign students that we then kick out. Clearly, if we really understood what we are doing here we would stop immediately and would not be doing that. However, to use an old phrase, we are seemingly hell bent on cutting our nose off to spite our face!

    Specifically, we, as citizens, have poured, and continue to pour, huge levels of valuable resources of all kinds into educating some of the worlds best and brightest students ~ including, of course, also educating many who are our own US born offspring but who apparently are not always anywhere near as motivated to pursue risky entrepreneurial adventures as those who came here to learn ~ only to then kick them to the curb at a point where they would otherwise become additional valuable assets to our own country in competing with the rest of the world or otherwise who at least would be here in providing valuable, much needed, professional services to our citizens: Instead, let’s send ‘em back to from wherever they came so they can build businesses there to compete very effectively, even unfairly, against the very people – us, citizens of the US – who gave them the means, the tools, the encouragement and knowledge they needed to beat us at our own game. Go figure.

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  • http://mindtaker.blogspot.com/ drunken_economist

    Oh, my little sahib, you REALLY need to do your homework. Guy Kawasaki (in your montage) was born & raised here. He’s NOT an immigrant. Seriously, details!

    Oh, and congratulations on your what? 5th job now? Wow, and I thought our local kids hopped around!

    Namaste?

    -Drunky

  • http://pulse.yahoo.com/_4FXIGJSCM3TMHOPMGD7G64QU2U Charles

    Why do you show Guy Kawasaki on the montage? He was born in America. He’s not an immigrant. Stop being deceptive.

  • Hibiki_2010

    Sounds all fine and dandy but as we all know, there is no enforcement of these laws. Id there were, the feds would be rounding up ALL inadmissible aliens under Title 8, Section 1182, which they are not doing. Do you seriously think the federal govt has the resources and manpower to check whether every one of these immigrants will not change jobs? 13 years of brining in “the best and the brightest” has failed to create jobs. Only a fool keeps trying something that has been proven not to work. And how do you know doing so would create hundreds of thousnds of jobs? Many startups fail. We might lose of most that VC money and still not have new jobs. All that would have been accomplished is more U.S wealth being sent out of the country by foreign workers. Foreign workers had their chance and they failed miserably to produce jobs. Game over immigrants. And who paid for Immigrants, Inc.? NASSCOM?

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