Why is it difficult for foreign-born entrepreneurs to start businesses in today's America?
Why is it difficult for foreign-born entrepreneurs to start businesses in today's America?
From Google to Tesla, immigrants have built some of America's biggest and most valuable companies. But it is now getting tougher, and may even become impossible for the next-generation of immigrant entrepreneurs to carve their niche
The Summit: These foreign-born entrepreneurs scaled Fortress America’s hostile immigration system to become billionaires, but it has since become even tougher—and the next generation might not be so fortunate Illustration: Emmanuel Polanco
John S Kim, co-founder of Sendbird, which offers real-time chat and messaging for mobile apps and websites, relocated from his native South Korea to San Francisco five years ago.
He wanted to be close to his US customers like Yahoo, Reddit and Headspace, have access to Silicon Valley venture capital, hire American engineers and expand his company in the US.
He easily obtained an L-1 non-immigrant visa for foreign executives, given that he’d first started the business in South Korea, but by 2019, he had only one extension left. He applied for a green card to get legal permanent residency—and received a letter that he’d likely be denied. “Notice of intent to deny is, ‘We’re going to kick you out; change our mind,’ ” he says. “We had raised $100 million–plus in financing, we had real revenue in the tens of millions of dollars, we were creating jobs. It was a slap in the face, for sure.”
As it turned out, Kim—whose company is now worth more than $1 billion and counts SoftBank and Tiger Global among its investors—was lucky. Two months later, after discussing contigency plans with his CFO and human-resources chief and filing piles of additional documentation, including translations of South Korean military service rules, he got his green card. He still feels traumatised by the experience.
“You want to build a company and you don’t want to get kicked out,” says Kim, who is 40 and lives in San Francisco with his wife and two children. “It’s like the grim reaper that hangs over you when you’re not a citizen.”
Long a hotbed of entrepreneurialism and a beacon of hope for immigrants, America is now known for a convoluted, highly politicised immigration policy that puts roadblocks in the way of foreign-born founders.
The result for years has been that immigrants who want to start businesses here contort themselves into one of the visa categories, such as E-2 (for investors from countries that have treaties with the US) or O-1 (for individuals of extraordinary ability), or try to cobble together something out of a half-dozen other categories—none of which is really designed for them.
Former President Donald Trump’s overt hostility toward immigrants isn’t echoed by the present administration, but neither President Joe Biden nor the new Congress has taken the necessary steps to make the US a more welcoming place for highly skilled newcomers.
The basic problem is that America has no startup visa specifically for founders, despite more than a decade of efforts to get one established. For years, the US attracted the best and brightest. But now entrepreneurs around the globe have more—and easier—choices.
Roughly 25 countries, including Singapore and the UK, are wooing entrepreneurs with startup visas set up in the past decade. “It’s not like they came up with the idea. It’s an American idea that we failed to act on,” says Jeff Farrah, general counsel of the National Venture Capital Association.
“There’s a global battle for talent,” says Steve Case, the billionaire co-founder of AOL and investment firm Revolution, who has been outspoken on the importance of a startup visa. “We want the best people with the best ideas who want to come to the United States and stay in the United States and start and build their companies in the United States. Otherwise, we risk losing our lead as the most innovative, entrepreneurial nation in the world.” Not only do immigrant founders create jobs at their own companies, he says, but there’s a ripple effect that leads to additional jobs in the larger community.
“I don’t dismiss the challenges around immigration, but we’re not going to remain the most innovative nation if we are continuing to have a challenging, chaotic, inconsistent, lurchy approach to immigration, particularly as it relates to entrepreneurs.”
Foreign-born entrepreneurs are key to the success of the US. Some 3.2 million of them operate businesses in the United States, representing nearly 22 percent of all business owners versus just 14 percent of the broader population.
They hold disproportionate numbers of patents for new technologies, employ 8 million people and are represented as founders at more than half of all venture-backed unicorns, including Databricks.
An analysis of the Forbes Billionaires list found 77 foreign-born entrepreneurs who built US companies with combined revenue of over $528 billion and total employment of more than 775,000.
Among the corporate heavyweights with immigrant founders: Google, Tesla and Yahoo. “If I had to worry about a visa, maybe Yahoo wouldn’t have gotten started,” says Jerry Yang, Yahoo’s billionaire co-founder, who emigrated from Taiwan as a child and was a naturalised citizen by the time he started the company.
Continuing to attract and keep all this talent is key to America’s future. In its waning days, the Obama administration set up a new programme called the International Entrepreneur Rule, allowing foreign founders with at least $250,000 in funding to stay in the US without a visa—but that programme was put on ice under Trump. The Biden administration announced in May that it is bringing the rule back, but it remains a stopgap measure with no clear path to permanent residency or citizenship.
Add to all this the anti-immigrant policies of the Trump years and the increasingly years-long wait times to get employment-based green cards—more than five years on average, and longer for people from countries like India, which has many applicants but no extra slots allocated—and the US is in danger of losing its status as the place to go to start a business.
For the first three years Trump was in office, through 2019 (data for 2020 isn’t available yet), the number of immigrant entrepreneurs rose a total of 4.1 percent, compared with a jump of 11.3 percent in the previous three years, according to data from New American Economy, an immigration research and advocacy group, based on the Census Bureau’s American Community Survey.
In 2019, the number of foreign-born entrepreneurs in the country declined by 4,400, the only yearly drop since 2000.
“America loses competitiveness gradually. It’s like a tire leaking air,” says Vivek Wadhwa, a fellow at Harvard Law School and author of the 2012 book The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent. “The fact is that the best and the brightest are not coming here anymore.”
Or they come but don’t bother to start businesses. “I know a lot of Stanford PhDs who want to start companies, but they don’t have the status,” says Xiaoyin Qu, a Chinese immigrant and Forbes 30 Under 30 alum, who got a green card while at Facebook and quit to start Run the World, which hosts virtual events. “I know at least 20 people at Facebook who say, ‘Hey, I want to start a company,’ and they can’t because they don’t have a visa.”
The US isn’t making anything easy. In conversations with more than two dozen foreign-born founders, they spoke of the problems they encountered and the tough decisions they had to make. Some waited for years to start companies because of their immigration status; others relocated overseas due to visa difficulties in the US.
After getting a master’s at Carnegie Mellon, Genia Trofimova, now 35, moved back to startup-friendly Estonia to found virtual coaching platform Introwise. Two years later she set up a US entity so that she could participate in a stint at the Techstars accelerator in Seattle. She is back in Estonia, but checks in on the US business when she can. On her last trip to the US, Trofimova, who travels on a B-1 temporary business visa (which does not permit the holder to work in the US), says she was detained at the airport for five hours: “They told me I didn’t look like a founder.”
Peyman Salehian, a 34-year-old native of Iran, considered coming to the US for graduate school after founding his first company but was lured by the National University of Singapore instead. After finishing a PhD in chemical and biomolecular engineering there, he started synthetic biology company Allozymes in late 2019 with a friend.
He looked into moving to the US, and received offers of startup funding here, but decided to stay in Singapore and take financing from a large Singaporean investor. Allozymes is just getting started, having raised a quarter of a million dollars.
“The investor interested in us [in America]. . . wanted us to be in the US immediately, and incorporate the company there, but we couldn’t do that,” Salehian recalls. “We talked to the lawyers, and there is no [US version of] EntrePass [Singapore’s work pass for foreign entrepreneurs], and any other type of visa takes a longer time.”
Meanwhile, Nilay Parikh, 30, arrived nine years ago from India to get a master’s in aerospace engineering at the University of Southern California and today works for a Chicago software firm on an H-1B visa, the main three-year visa for workers at large businesses.
Parikh had an idea for a startup that would use artificial intelligence to make factories safer but couldn’t do it in the United States due to the immigration rules, and he didn’t want to wait till he could get a green card. His solution: He kept his US job but set up the company, called Be Global Safety, in the Netherlands.
“It definitely is very complicated,” he says. “I was looking at Canada, Dubai, Germany and the Netherlands.” The latter won out, he says, because it offers resources for AI companies and because Rotterdam, a city he has yet to see due to pandemic travel restrictions, is an aerospace hub and home to a major port.
Noubar Afeyan, the billionaire founder of Cambridge, Massachusetts–based venture firm Flagship Pioneering, which started Covid-19 vaccine maker Moderna, says that difficulties with visas delayed the launch of a number of his startups, in some cases by months.
“The uncertainty over whether the person has been able to get [a visa] or not has caused us to slow things down,” says Afeyan, 58, the grandson of Armenian refugees who was born in Lebanon and became a US citizen in 2008. “The environment has been getting increasingly harder and unpredictable.”
It’s hard to quantify things that never happened or count companies that were never founded, but a 2013 analysis by the Kauffman Foundation concluded that a startup visa would have released pent-up entrepreneurial demand, resulting in as many as 1.6 million new jobs over 10 years.
A 2020 National Bureau of Economic Research working paper on why restrictive immigration is bad for US entrepreneurship shows that immigrants were 80 percent more likely to start a business than those born in the US, and that the number of jobs created by these immigrant-founded firms was 42 percent higher than native-founded firms, relative to each population.
Entrepreneurs are one aspect of a far larger debate over the nation’s dysfunctional immigration system, but they are critical to the country’s economic growth. “By inhibiting and preventing immigrant entrepreneurs from coming to the US, we are purposely putting our country at a competitive disadvantage,” says Brad Feld, managing director of the Foundry Group and co-founder of the Techstars accelerator.
One of the reasons why so many other countries offer startup visas and perks is that they need to in order to lure talented entrepreneurs. Historically, the United States hasn’t had to worry about that. American universities have always drawn from overseas, and thousands of graduates from elite schools like MIT, Stanford and Carnegie Mellon start companies after graduating.
Back in the 1990s—when Soviet refugee Sergey Brin co-founded Google and French immigrant Pierre Omidyar started eBay—more than 90 percent of global venture capital went to US companies, according to research published by the Center for American Entrepreneurship.
But now Silicon Valley venture firms are investing globally, and foreign-based investors are looking to re-create the startup ecosystems of the US elsewhere. Today, just over half of global venture funding—or $164 billion out of a total $321 billion—goes to US companies, according to NVCA.
Indian entrepreneur Kunal Bahl, founder of ecommerce giant Snapdeal, notably left the US in 2007 when he failed to get an H-1B visa after graduating from Wharton. The marketplace now employs roughly 4,000, mostly in India.
“The immigration rules we are working under are four decades old,” says Elizabeth Goss, a Boston-based immigration attorney. “Entrepreneurs are job creators.”
Adding to worries is the pandemic’s effect on American universities. Going to a US college or graduate school has long been a leading pathway into the country for foreign-born entrepreneurs. Covid-19 has crushed that.
The total number of international students, both in-person and those studying online, fell 16 percent in the autumn of 2020, according to a report led by the Institute of International Education. Obviously those numbers will bounce back to some extent post-Covid, but perhaps not to pre-pandemic levels.
“You have to think about those folks who didn’t get a visa to study in the US and therefore won’t be in a situation to found a company later on,” says Pierre Azoulay, a professor at MIT Sloan who studies immigrant entrepreneurs and is one of the authors of the NBER study.
Back in 2008, venture capitalist Feld began organising for a new startup visa for entrepreneurs after seeing a number of non-US founders in Techstars struggling to set up their businesses in the US. In 2010, then-Senators Richard Lugar and John Kerry introduced the first startup-visa legislation—and failed to get it passed.
Another startup visa was included in the comprehensive immigration reform bill of 2013; it too languished. Since then, there have been bipartisan efforts sponsored by Jerry Moran and Mark Warner in the Senate and by Zoe Lofgren and former Representative Luis Gutiérrez in the House. None has become law. Lofgren, who oversees the immigration subcommittee, is working on a new visa.
The primary problem is untangling any potential startup visa from the toxic gridlock of America’s immigration policies. “We don’t have any natural predators in the jungle who say we want to have less entrepreneurship, not more entrepreneurship, but we have not been able to detach this from the larger immigration debate,” says the NVCA’s Farrah.
Without federal legislation, a number of ad-hoc programmes have emerged to fill the gap. The New York City-based Global EIR initiative, founded in 2015, partners with cities including Detroit and Pittsburgh to create entrepreneur-in-residence programmes for immigrant entrepreneurs. To date, Global EIR has worked with over 100 founders, who have raised some $500 million and created around 1,000 jobs. To get a sense of the size of the opportunities we’re missing, imagine that scaled 100 times by a formal entrepreneur-visa programme.
One bright note: The International Entrepreneur Rule. That’s the policy the Biden administration resurrected in May that allows the Department of Homeland Security to grant “parole” to foreign entrepreneurs with at least $250,000 in funding.
Under the rule, the founders, who must prove they bring some benefit, can work for their startups for two and a half years with the possibility of one extension. When the rule was first proposed under Barack Obama, it was expected to get nearly 3,000 applicants per year—with the potential to create up to 430,000 US jobs over 10 years. Then Trump effectively killed it, with only 28 applying and just one approved in four years.
Yiannis Yiakoumis, who came to the US from Greece and got a PhD in electrical engineering at Stanford, was the one successful applicant. He co-founded San Francisco–based Selfie Networks, which improves network security and performance based on his academic research, in 2017. He already had an O-1 visa, but that didn’t permit his wife to work, so when he learned about the possibility of parole, he applied in 2018. “There was no real downside,” says Yiakoumis, 39. “Our expectation was nobody would look at it.” It took a year, but he got approved, surprising many.
Glen Wang, 30, who was born in China and graduated from the University of Chicago, is with his parents in Calgary, Alberta, while he prepares his parole application.
In late 2019, he co-founded The Third Place, a San Francisco startup that helps restaurants gain business by setting up recurring takeout orders, which he took through the Y Combinator accelerator. But his previous H-1B visa tied him to his former employer, online education firm Khan Academy. “Legally speaking, it’s really tricky to be working full-time on your own startup until you have some kind of status that makes it formal,” he says.
Silicon Valley immigration attorney Sophie Alcorn expects to file a handful of applications for entrepreneurs soon. “Some of the founders are outside the United States but cannot come in, and others are here but cannot work at the company they own,” she says. “I’m cherry-picking the people who have already raised millions.”
The revived rule is a great step, but it’s not a visa. Instead, it’s allowed under presidential oversight as a humanitarian issue, and could be withdrawn by a future administration. There is also no direct path from parole to permanent residence for founders who want to stay. That could be achieved only by establishing a startup visa.
“I hope Congress acts before it’s too late,” Steve Case says. “Could something happen in the next few years? It sure better, or I think our country, in terms of being the leader of the innovation economy, is at risk.”
The partisan politics of immigration have long left the startup visa in limbo and always out of reach. But as the United States looks at ways to help the economy rebound in the wake of the pandemic, it shouldn’t wait too long. After all, other countries are happy to welcome in these would-be American dreamers instead.