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VCs Push StartUp Visa Act

by Douglas MacMillan from Bloomberg BusinessWeek on Mar. 3, 2010

During recent travels abroad, Shervin Pishevar says he witnessed flourishing tech communities in places like Russia, Argentina, and Jordan. "There's a tremendous amount of talent out there," says Pishevar, an Iranian-born entrepreneur and angel investor now based in Silicon Valley. He wants to ensure global talent can take root in his adopted country, too.

So on Mar. 3, Pishevar joined a group of more than a dozen other investors and tech luminaries on a three-day trip to Capitol Hill. Talking point No. 1: the StartUp Visa Act of 2010, a bill introduced by Senators John Kerry (D-Mass.) and Richard Lugar (R-Ind.) in late February that would create a new type of visa for foreign entrepreneurs looking to start businesses in the U.S.

Pishevar and other proponents say the legislation would help the country compete for talent and create new companies that would employ American workers at a time when joblessness is rampant. "This bill is a small down payment on a cure to global competitiveness," Senator Kerry says in an e-mail to Bloomberg BusinessWeek.

In 2009, the percentage of U.S. residents creating new domestic companies fell to 8% from 12.4% in 2005, according to the Global Entrepreneurship Monitor, a research collaboration of the London Business School and Babson College. Over the same period, the percentage of residents in foreign countries tracked by the group who are creating new companies rose to 11% from 8.7%. "You see entrepreneurs in China and India regularly starting up ventures," Kerry writes. "We want to bring those strong ideas to the United States to create jobs here at home."

Foreign Founders

The StartUp Visa would help keep foreign founders in the U.S., says Paul Graham, co-founder of Mountain View (Calif.)-based startup incubator Y Combinator. "We've funded a number of startups where the founders had to go back to their countries" because they couldn't obtain visas, he says. In April, Graham wrote an online essay arguing for the creation of a "founder visa." The post prompted tech influencers including Foundry Group Managing Director Brad Feld and Founders Fund startup investor Dave McClure to push the idea in investing circles and Washington. When Senators Kerry and Lugar introduced their bill on Feb. 24, they were supported by a list of more than 160 venture capitalists and other investors.

The StartUp Visa Act would create a new type of two-year visa, called an EB-6, available to any immigrant entrepreneur who has secured at least $250,000 in capital from accredited venture capitalists or angel investors. After two years, the person would become a permanent U.S. resident if his or her business has met one of three criteria: created five full-time jobs in the U.S., raised an additional $1 million from investors, or achieved $1 million in revenue.

Venture capitalists sometimes shy away from even compelling pitches from overseas startups in part because of visa-related hassles, says Jeff Clavier, a San Francisco-based angel investor. Of the 72 startups he's funded in the past six years, four have had foreign chief executives, he says.

Candidates for a StartUp Visa are legion, says Vivek Wadhwa, executive-in-residence at the Pratt School of Engineering at Duke University, who is also a columnist for "There is pent-up demand," he says. If the bill were to become law, Clavier says he would give more favorable consideration to foreign startups. He mentors the two Dutch founders of Newcope, a social gaming startup. "Their likelihood of success in the Netherlands is close to zero" because much investing in social gaming is in Silicon Valley, home to such companies as Facebook and Zynga. The Foundry Group's Feld, who is based in Boulder, Colo., says he is "regularly solicited by foreign entrepreneurs, including a meaningful percentage who are interested in moving to the U.S. and starting their business here."

Bill's Prospects

Getting the bill passed is not a foregone conclusion, says Demetrios Papademetriou, president of the Washington think tank Migration Policy Institute. "Introducing a bill into the U.S. Congress is the easiest thing to do," he says. "Getting it to see the light of day is the hardest."

Critics of immigration reform are likely to point out potential loopholes in the new bill that might grant citizenship to immigrants who are not successful entrepreneurs. Kim Berry, head of the IT trade group Programmers Guild, questions what will happen to EB-6 visa holders whose businesses fail. "The entrepreneur is permitted to remain in the country even if the terms are not met and the venture fails" except under limited circumstances, Berry says. The Programmers Guild does not have lobbyists in Washington and is "not opposed to the concept," Berry says. "We're opposed to the loopholes."

How much the U.S. economy could benefit from StartUp Visas is also a matter of debate. Proponents say it could attract thousands of new startups in a few years, and tens of thousands of jobs. Ron Hira, professor of public policy at the Rochester Institute of Technology, says the backers of the StartUp Visa have not done enough research to show that there is widespread demand for it.

Another point of contention is whether the bill would force U.S. entrepreneurs to compete with foreigners for essentially the same pool of funds. Last year, venture capitalists invested $17.7 billion in U.S. firms, according to data compiled by the National Venture Capital Assn. and PricewaterhouseCoopers, from a peak of $100.5 billion in 2000. Kerry and VCs say the StartUp Visa would help add to—rather than take from—this total. "I'm sure it would increase" the total VC investments, says Ron Conway, an early investor in Google (GOOG) and PayPal who now runs the SV Angel fund. Kerry agrees: "Once the program catches on, we expect that it would lead to the funding of more startup businesses here than would be the case without it."

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