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The Immigrant Exodus: Will the US Run Out of Entrepreneurs?

Tuesday, 23 Oct 2012 | 12:15 PM ET

The U.S. has been ground zero for technological advancement for years— especially with the rise of the Internet. But entrepreneurial experts are sounding the warning bell that those days might be numbered.

Image Source | Getty Images

Silicon Valley is still the heart of the tech world, but foreign-born entrepreneurs, who traditionally have moved to the U.S. to start their companies (or stayed here after attending American universities), are now opting instead to return home, in large part because of the difficulty in obtaining a work visa.

"It's increasingly hard for a foreign born entrepreneur to get an appropriate visa to stay in the U.S.," said Brad Feld, an early stage investor and managing director of Foundry Group.

"Things have gotten a little better recently with nuanced policy changes at [US Citizen and Immigration Services], but it's still a disaster on a relative basis," Feld said.

Feld's not alone in his criticisms of immigration practices. Along with other prominent American investors, such as Eric Ries, Paul Graham and Netflix founder Reid Hoffman, he is spearheading a movement called the Startup Visa. At its core, this proposed amendment to the immigration law would create a new visa category for foreign-born entrepreneurs who have raised capital from recognized U.S.-based investors.

The proposal found sponsors in both the House and Senate, but has been stuck in committee for well over a year. (More: 11 Entrepreneurs Teaching the Next Generation)

There's no vocal opposition to the bill, but neither does there appear to be a groundswell of Congressional support — and that gridlock is resulting in more immigrant entrepreneurs packing up and heading home.

"Talk to anyone in the startup community, and they all say we've started to run out of talent," said Vivek Wadhwa, director of research at Duke University's Center for Entrepreneurship and Research Commercialization and the author of "The Immigrant Exodus."

"What you're seeing is less innovation than you might have otherwise seen," he said. "Economic growth is being given away."

Even New York Mayor Michael Bloomberg is weighing in on the matter, saying "America is committing economic suicide by failing to confront the issue of immigration reform," at an August meeting of the Economic Club of Chicago.

In 2011, immigrants were responsible for 28 percent of new U.S. businesses, according to the Partnership for a New America, a gathering of over 450 Republican, Democratic, and Independent mayors and business leaders who support immigration reform. Those businesses, the group said, generated more than $775 billion in revenue, $100 million in income and employed 10 percent of the people working for private companies.

Source: wadhwa.com

The growth is plateauing, though. International students are coming to U.S. schools and learning from established entrepreneurs and venture capitalists, but are increasingly losing their desire to stay in the U.S.

"We are living in a world where the U.S. doesn't have a monopoly on innovation — we need to be doing everything we can to keep smart immigrants who want to stay in the U.S. here," said Feld. (More: An Apprenticeship to Rival Peter Thiel's?)

"It confounds me that we have amazing universities that attract smart immigrants from all over the world, but then we don't make it easy for them to stay in the U.S. after they get a degree," Feld said.

As the U.S. deals with the talent drain, other countries are starting to build out their infrastructure to cultivate startups by creating incubators and accelerator programs.

"A surprising number of the foreign students … believed their home countries offered better economic opportunities in the long term," wrote Wadhwa in his book. "This was particularly true for Indian and Chinese students."

In India, Bangalore and Mumbai are both tech hubs. Entrepreneurs in the country raised $1.5 billion in 155 rounds last year (an improvement on the $1.1 billion raised in 103 rounds in 2010), according to Ernst & Young. (More: The Baby Boomer Entrepreneur)

Meanwhile, other cities, such as Oulu, Finland, are digging into their own pockets. Oulu's 'Northern StartUp Fund' (backed by the city and private investors) currently stands at €10 million, earmarked for startup businesses.

Silicon Valley might still be the center of technological innovation, but experts worry that between the visa issues foreign entrepreneurs face and the growing interest by other countries to build an ecosystem that supports startups, that might not last forever.

"Move forward five years and we'll see what we did wrong," said Wadhwa. "We'll start seeing Google-like ideas in other countries. … [This shift] is in its infancy. We've just sent these people back in the past few years — and it takes a while for ecosystems to grow. … Silicon Valley is doing OK for now, but it's not what it used to be."