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How lack of immigration reform harms start-ups, US economy

Thomas Barwick | Stone | Getty Images

As President Barack Obama begins his second term, small companies and the technology community are hoping for immigration reform to help them secure highly skilled foreign workers.

Overhauling U.S. immigration law has been long-awaited for years. But without political consensus on the issue, technology start-ups in particular have felt the pains of limited works visas. They've also absorbed the high legal fees associated with the visa process—costs that few cash-strapped upstarts can afford.

"I've been blown away by how much the immigration policy has been kicking us in the teeth," said Alex Salazar, chief executive and co-founder of Stormpath, a Silicon Valley start-up that's been struggling to find candidates in engineering, computer science and software development. Most of his candidates are from outside the U.S., and half the recruitment conversations are about visas.

"In Silicon Valley it's a war for talent—an all out knuckle-drag war," Salazar said. And America's current immigration policy only slows Salazar's ability to hire specialized talent in a tech sector that's hot, competitive and only growing.

Frustrated by how the drawn-out visa process is hampering his 11-employee business and its grow path, Salazar posted the following note on his Facebook page: "If you want to be a great startup CEO, become an expert in U.S. immigration policy."

(Read more: Why immigration reform may happen this year)

Hopes for immigration reform

Stormpath and other start-ups say they can't efficiently hire qualified foreign candidates because of a shortage of temporary work visas and green cards. They've been pushing for legislation that would allow more immigrants with high-tech skills to remain in the country.

"The demand for software developer talent is growing so much faster than our own American candidate pool is growing—regardless of why," Salazar said. "The demand is insatiable. I can't just grab someone from a regular school and give them two months of training and throw them on our projects. You have to have six to seven years of experience, computer science degrees from the top schools."

(Read more: Global Entrepreneur Trends: Americans More Upbeat)

Immigration reform wasn't a priority during Obama's first term. But during his second inaugural address, Obama hinted at change.

"Our journey is not complete until we find a better way to welcome the striving, hopeful immigrants who still see America as a land of opportunity," the president said, "until bright young students and engineers are enlisted in our workforce, rather than expelled from our country."

Gary Shapiro, president and chief executive of the Consumer Electronics Association, has been a vocal advocate of immigration reform. The message from the White House seems to be that Obama won't agree to raising visa caps for highly skilled immigrants unless it is part of a broader reform plan, he said.

"When I talk to our industry members, they all say it [the lack of immigration reform] is a problem for their companies," Shapiro said. "And it's not just our industry." Biotechnology and medical fields are experiencing similar struggles to fill specialized slots, he said.

Shapiro argues the current immigration landscape combined with our corporate tax policy dampens American entrepreneurship. "Between immigration and the tax system, it's a very harmful strategy to economic growth and job creation in the United States," Shapiro said.

Shapiro and other tech leaders were disappointed when the White House and Congress failed to pass a bill late last year that would have removed random lottery slots for hard science PhDs. The bill, known as the STEM Jobs Act, would have helped keep foreign-born graduates in America. The STEM fields are science, technology, engineering and mathematics.

(Read more: NYC Grows as Hub for Small Digital, Entertainment Businesses)

Has immigrant-led entrepreneurship plateaued?

As the immigration debate churns on, there's no denying immigrants' contributions to new U.S. businesses and job creation.

Of the engineering and technology companies founded in the U.S. between 2006 and 2012, 24.3 percent had at least one key founder who was foreign-born, according to an October report from the Kauffman Foundation. In Silicon Valley, the number was 43.9 percent.

And while the growth rate of immigrant entrepreneurship nationwide has plateaued to 24.3 percent today from the unprecedented expansion of the 1980s and 1990s, immigrant founders of engineering and technology companies have employed roughly 560,000 workers and generated an estimated $63 billion dollars in sales from 2006 to 2012, according to the Kauffman Foundation.

Meanwhile short of immigration reform, small companies continue to scramble. "The current immigration policy is effectively a tax on my business," said Salazar of Stormpath, which helps businesses create online user authentification platforms for websites.

Salazar said it can cost roughly $5,000 to $6,000 in legal fees to get a candidate on board—a sizeable hit for cash-strapped start-ups. And his company Stormpath is competing with other employers specifically on the degree to which they'll manage and ferry the job candidate's visa process, he said.

Buckling under complicated paperwork and costs, you can't blame Salazar and other entrepreneurs for being frustrated about how America values entrepreneurs and innovators—and whether we're willing to put policy changes in place to reflect those priorities. "We're hampering one of our fundamental national industries—technology," Salazar said.

Written by CNBC's Heesun Wee. Follow her on Twitter @heesunwee

(Read more: 10 start-up events to watch in 2013)

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