Report: Immigrants Found Half of Top Start-ups

Meet The Real Job Creators

“To immigrate is an entrepreneurial act.” – Edward Roberts, MIT Entrepreneurship Center

Candidate Paul Ryan said during the October 11, 2012 Vice Presidential debate (ostensibly in reference to job downsizer Mitt Romney): “Wouldn’t it be nice to have a job creator in the White House?”

Apparently there is widespread misunderstanding about who the real job creators are. Research sheds light on who are the actual job creators in America. It isn’t the wealthy. Research shows:

Immigrants are key to startup formation and job creation.
America’s immigration policies are damaging to innovation

A report, Immigrant Founders and Key Personnel in America’s 50 Top Venture-Funded Companies, by the National Foundation for American Policy (NFAP), a non-profit research group based in Arlington, Virginia shows that immigrant entrepreneurs have founded nearly half of America’s top venture-backed companies. Silicon Valley, for instance, is filled with start-ups founded by immigrants.

The research analyzed a list of 50 of America’s top private venture-funded companies, as ranked by VentureSource, a Dow Jones research firm.”

Among the findings:

46% of America’s top venture-funded companies had at least one immigrant founder
74% had at least one immigrant holding a top-level management position (CEO, CTO, and VP were most common)
Each company has created, on average, about 150 job and are still in their high-growth stage.
The most common country of origin for immigrant founders was India, followed by Israel, Canada, Iran, and New Zealand.

Other research from the American Enterprise Institute found that between 2000 and 2007:

for every additional 100 foreign workers coming into this country with an advanced “STEM” degree (science, technology, engineering, or math) an average of 262 new jobs were created for native-born U.S. citizens.

More research supported by the Kauffman Foundation studied engineering and technology firms started in the United States from 1995–2005, surveying thousands of companies and interviewing hundreds of company founders. The research found that of U.S. science and technology companies founded from 1995 to 2005:

A quarter had a chief executive or lead technologist who was foreign-born.
In 2005, these companies generated $52 billion in revenue and employed 450,000 workers.
In some industries, the numbers were much higher; in Silicon Valley, the percentage of immigrant-founded startups had increased to 52 percent.
Indian immigrants founded 26 percent of these startups—more than the next four groups from Britain, China, Taiwan, and Japan combined.

Other findings shown in this research, according to data in the World Intellectual Property Organization database, show that 2006:

Foreign nationals residing in the United States were named as inventors or co-inventors in 25.6% of patent applications filed from the United States, a substantial increase from 7.6% in 1998.
More than 40% 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.
Foreign nationals also contributed to a majority of some U.S. companies’ patent applications, including
- Qualcomm—72%
- Merck—65%
- GE—64%
- Cisco—60%.

Talented immigrants play such a vital role in the creation and expansion of American companies and the culture of entrepreneurialism because they have a fresh perspective and are well positioned to find new ways to solve economic problems and create value.

Land of Opportunity?

Yet foreign entrepreneurs struggle to obtain visas to start companies, due to government imposed restrictions and quotas. The channel for them to enter this country legally is over-regulated, overly expensive, unpredictable, and deeply time-consuming. For instance:

H-1B visas for highly skilled workers, expire in just 3 years, and are only renewable once.
The total number of H-1Bs allowed every year is capped at 66,000 (with very limited exemptions for foreigners who received a degree from an American graduate program).
The H-1B fee was recently raised by over 600 percent — from $320 to $2,000.

Visa restrictions mean reverse brain drain as ambitions foreigners who graduate from American institutions of higher education give up on getting a permanent residence or a worker visa here and take their talents elsewhere.

Eric Markowitz of Inc.com documents the struggles that Alex Mehr, co-founder of Zoosk, an online dating site that was selected as one of the country’s top venture-funded firms, encountered in getting started:

In 2002, Mehr, who had moved to the Unites States from Iran to pursue a graduate degree in engineering at the University of Maryland, wanted to start an engineering software company with his two friends. Both had moved to the United States on student visas from Iran. But they were immediately stymied.

“I’ll never forget the day we went to the immigration lawyer,” says Mehr. “He looked at us and shook his head, and said, ‘You better stop doing this and get a real job.’ We couldn’t sponsor ourselves through our own startup.”

It was not until 2006 that Mehr was selected in the lottery for a diversity visa, and granted a green card. Shortly after, his partner, Shayan Zadeh’s green card application came through, and, in 2007, they started Zoosk. Today, the company is a global enterprise, with users in 70 countries, has raised more than $40 million in venture capital, and has 110 employees.

Serious Reform Needed

Antiquated Quotas: As of September 30, 2006, a total of 1,181,505 educated and skilled professionals waiting to gain legal permanent-resident status. Waiting in line were:

500,040 individuals in the main employment-based visa categories
555,044 family members waiting for permanent-resident status
126,421 who already had job offers were waiting abroad.

Yet only 120,000 visas are available for skilled immigrants in the key employment categories, and no more than 7% of the visas may be allocated to immigrants from any one country. Under this antiquated system, immigrants from countries with large populations like India and China have the same number of visas available (8,400) as those from small nations like Iceland and Mongolia. More than one-third of the waiting workers are from India.

According to researcher Vivek Wadhwa, Executive in Residence, Pratt School of Engineering, Duke University; Wertheim Fellow, Labor and Worklife Program, Harvard University; Fellow, Social Sciences Research Institute, Duke University:

This means that immigrants from the most populous countries who file for permanent resident visas today could be waiting indefinitely. In the meantime, they can’t start companies or lay deep roots in American society.

While those immigrants wait, both 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. And the best foreign students in the United States, who typically have stayed after graduation and contributed to U.S. economic growth, are growing increasingly frustrated with visa delays and are choosing to return home.

“Pay for Play” Favors the Wealthy: Among the many hurdles facing immigrant enterpreneurs, foreign investors can receive a visa for investing at least $500,000 in an American venture. Critics, including National Venture Capital Association (NFAP), contend that this is a pay-for-play program that does nothing to create jobs. The New York Times agreed, noting that New York City zoning officials may have altered census numbers to create safe investment opportunities for wealthier investors at the expense of the more talented. According to Stuart Anderson of the NFAP:

The status quo of rewarding cash but not talent is a rejection of America’s heritage as a nation of immigrants and a nation of entrepreneurs.

Will Washington Recognize the REAL Job Creators?

Small Steps: H.R. 3012, The Fairness for High-Skilled Immigrants Act, which passed the House by a 389-15 margin, does not increase the number of available entrepreneur visas, but would increase the number of employment-based visas. Even without a much needed overhaul of the immigration system, small steps like these can help immigrant entrepreneurs in the U.S.

The bill finally phases out quotas on the number of legal permanent residents who can be admitted in any given year from a single country. Currently, thousands are approved each year to enter the U.S. as legal permanent residents, but must wait for their number to come up under the annual cap for their countries. Backlogs mean that workers from Indiacurrently face waits of 70 years, and family members from Mexico wait more than a decade.

Another bill, HR 3692, the INVEST Act was recently introduced by Reps. Adam Schiff (D-CA) and Charlie Bass (R-NH) to help foreign born students with STEM (Science, Technology, Engineering and Math) degrees from U.S. universities to remain here to start a business. The bill, , would create as new Visa category that would grant permanent residency to an immigrant entrepreneur who starts a new business, creates two new jobs or invests $200,000 after two years; and creates five jobs or invests $500,000 in the business within five years. According to Reps. Schiff and Bass:

The INVEST Act will allow highly skilled entrepreneurs the opportunity to build the next great company and to do it in America. Our universities are educating the next generation of Steve Jobs – we want to make sure they build the next Apple in the United States and not overseas.

More Reforms Needed

Given the ill-informed, highly politicized anti-immigration sentiment today, it’s difficult to make the needed reforms. However, this may change as the issue becomes more widely understood. Other steps that could help include:

Expand the H-1B program to create a special “Startup Visa” for immigrants looking to create new companies in the United States, and increase the number of green cards for workers with advanced degrees.
Extend the EB-5 Visa program (set to expire in September) which provides green cards to foreign nationals who invest significant money in the United States. (Jared Polis (D-Colo.) has taken the lead on this important bipartisan initiative.)

We are on the verge of a reverse “brain-drain.” If the United States doesn’t fix its policies and keep these highly skilled immigrants, India and China will welcome them home. So will countries like Singapore, Canada, Dubai, and Australia, which are opening their arms to skilled immigrants. They will start their ventures in Bangalore or Shanghai instead of Silicon Valley and Research Triangle Park. Our loss will be their gain.

Immigration Reform Would Create Millions of Jobs and Revitalize The Economy

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