Can Obama's immigration reform stop Silicon Valley's brain drain?

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Francisco Sáez arrived in Silicon Valley last January. He had just dropped out of college and, like many 21-year-old app developers, the Chilean national was teeming with ambition — wide-eyed and ready to pursue his dreams of becoming an entrepreneur.

For Sáez, the trip meant everything. He had been dabbling in side projects and web ventures throughout his four years as an engineering student in Santiago, Chile, but Nixter — an app that shares crowdsourced data on hot nightlife destinations — was the first to gain real traction. He and his three partners had already raised some $100,000 in early funding, and in 2011, received an award from CORFO, Chile’s government-run incubator program.

It was because of this award that Sáez found himself standing next to his brother and two friends in San Francisco last January. And it’s because of US immigration law that he found himself back in Santiago nine months later.


Sáez and his team came to the Valley on CORFO’s dime. The government also gave them free office space, where they spent months guiding their creation through various iterations. In October 2012, just as they were preparing to launch the app in earnest, their short-term visas expired. Their lawyer told them that without a corporate sponsor, $750,000 in venture capital funding, or government-recognized "extraordinary capabilities," their chances of obtaining longer-term visas were literally zero.

Today, Sáez is still working on his app from Santiago, and despite the setback, he says he has no regrets about his US sojourn. But his story is emblematic of a larger trend unfolding in Silicon Valley, where foreign-born engineers and entrepreneurs have found it increasingly difficult to obtain permanent legal status — largely due to the complex and arcane nature of American immigration policy.

The tech industry has been urging Congress to take meaningful action on immigration reform for several years now, with many calling for the creation of a so-called startup visa — a dedicated category that would allow foreigners to launch their own business in the US under more flexible conditions than traditional work visas. Proponents say this visa would make it easier for foreign talent to stay and create jobs in the US, but their calls for reform have thus far yielded scant results.

The tech industry runs the risk of seeing even more aspiring entrepreneurs take their talents elsewhere

That may soon change, however, now that immigration policy has come to the forefront of the national agenda. The 2012 presidential election seems to have finally mobilized politicians on both sides of the aisle to enact serious immigration reform, as evidenced by the comprehensive legislation proposed this week in the Senate. President Obama, meanwhile, has publicly reaffirmed his support for the startup visa, including it as a provision in the immigration framework he unveiled at a speech in Nevada yesterday.

Yet it remains unclear whether the startup visa will be carried forward on the wings of bipartisan consensus, or lost amid the broader debate over big ticket issues like border security and paths to citizenship. And as its fate hangs in the balance, the tech industry runs the risk of seeing even more aspiring entrepreneurs take their talents elsewhere.

The last few years have seen an influx of international students at American universities, with many coming from countries like China and India to pursue degrees in engineering. Upon graduating, however, non-American entrepreneurs looking to launch their own company are left without a viable option for legal residence.

The most common route for foreign-born graduates is the H-1B visa, which offers legal working status to skilled foreigners with existing job offers. This category of visa can be difficult, if not impossible to obtain for graduates looking to build their own company rather than join someone else’s. Recent guideline revisions make it possible for foreigners to own their own business with a H-1B visa, as long as their employment status remains under the control of someone else — for instance, a board capable of hiring, firing, and supervising the applicant.

Other categories, such as the O-1 and EB-1 visas, target individuals with "extraordinary ability." Unlike the H-1B, these visas typically don’t carry any employment requirements, but their criteria are much more selective. The categories are only open to those who have won an international or national award in their field, published their work in a respected journal, or garnered some other high level of recognition.

Ostensibly most conducive to entrepreneurs is the EB-5 category, which offers visas to foreign investors in American companies. The US issued nearly twice as many EB-5 visas in 2012 than it did in 2011, though its annual quota remains capped at 10,000, and its $1 million minimum investment severely limits the pool of eligible candidates.

As a result, many foreign-born entrepreneurs have begun turning their attention beyond US borders. An October 2012 study from the Kauffman Foundation found that from 1995 to 2005, 52 percent of all Silicon Valley companies had at least one immigrant founder or co-founder. Today, that figure is closer to 44 percent.

"We’re choking off innovation here," says Vivek Wadwha, a Fellow at Stanford Law School and one of the authors of the Kauffman study. "It’s not that there are fewer immigrants, it’s not that there are more startups. When you’re here in Silicon Valley or when you go abroad, you meet thousands of foreign entrepreneurs who would love to come here to start companies, but they can’t do it because they simply can’t get a visa."

It’s the looming specter of "brain drain" that has spurred Wadwha and others to call for the creation of a new startup visa designed to meet the needs of the tech sector’s unique labor flows. Because as growing numbers of foreign entrepreneurs become entangled in American red tape, other countries are rolling out the red carpet.

As growing numbers of foreign entrepreneurs become entangled in American red tape, other countries are rolling out the red carpet
"I plan to go down to Silicon Valley with some of the industry associations here and fly the Canadian flag."

Last week, the Canadian government unveiled new details about its Start-Up Visa Program — a pilot initiative designed to lure immigrant entrepreneurs and investors with the promise of permanent residency.

When the program launches on April 1st, entrepreneurs meeting certain language and educational requirements will be able to easily gain permanent resident status, as long as they’ve obtained an as-yet unspecified minimum amount of funding from a Canadian venture capital fund, angel investor, or business incubator. The government will work directly with these firms to first identify promising candidates, before clearing them for entry within the span of a few weeks.

Both Chile and the UK have taken a similar approach to foreign entrepreneurship, but Canada’s program is bolder than most. Unlike other initiatives, Canada’s startup visa offers permanent and unconditional residency right off the bat, providing entrepreneurs with a comparatively straightforward path to citizenship.

The hope, according to Citizenship and Immigration Minister Jason Kenney, is that this streamlined approach will "make Canada the destination of choice for the world's best and brightest" entrepreneurs, while breathing new life into the Canadian tech sector as a whole.

The gradual decline of Waterloo-based BlackBerry has left something of a power vacuum at the center of Canada’s tech industry, but it’s also created opportunities for new companies to flower in major cities like Vancouver and Toronto, as well as emerging outposts in Ottawa and Halifax. And although Canadian entrepreneurs like Cinemagram founder Temo Chalasani continue to leave their country for the glamour and riches of Silicon Valley, officials say an injection of foreign talent could be enough to lure them back home.

Yuri Navarro, Executive Director of the National Angel Capital Organization (NACO), says the complexities of US immigration played a direct role in Canada’s decision to open its doors.

"The government has been clear that they see it as an opportunity," said Navarro, whose organization is one of three trade groups collaborating with the government to implement its initiative. "And it’s one that was created by the inability of the US to pass anything like this."

Kenney took on a notably more assertive tone at Thursday’s press conference, telling reporters that the startup visa would take direct aim at Silicon Valley.

"When this thing gets launched, I plan to go down to Silicon Valley with some of the industry associations here and fly the Canadian flag," Kenney said.

It’s far too soon to say whether Canada’s strategy will pay dividends; the program hasn’t even begun its five-year pilot run, and officials expect to issue only a few hundred startup visas in its first year. But the country’s bold approach has suddenly put US immigration policy in even harsher relief, raising an important question: will American lawmakers’ newfound enthusiasm for immigration reform actually result in a more welcoming environment for foreign entrepreneurs?

Silicon Valley has been vocal in its support for a Canadian-like startup visa, though thus far, the industry’s efforts have gained little traction on Capitol Hill.

The reform movement first picked up steam with the StartUp Visa Act of 2011, a bipartisan bill that, in light of Canada’s approach, now seems tame by comparison. The proposed legislation offered visas to foreign entrepreneurs with at least $100,000 in venture funding, and required holders to have created at least five American jobs and $500,000 in revenue after two years. Despite garnering support from both sides of the aisle, the bill never made it out of Congressional committees. The STEM Jobs Act and IDEA Act outlined similarly expansive measures for highly-skilled foreign workers, including an increase in green cards for math and science graduates, but neither were ever brought to a vote.

Congressional gridlock over federal spending and election year jockeying undoubtedly played a role in the StartUp Visa Act’s demise, but so too did lingering doubts on both sides of the aisle. Left-leaning labor unions have long worried that visa reform would threaten American jobs, while some on the right, including Rep. Lamar Smith (R - TX), feared that a startup visa program would give the government too much power in deciding Silicon Valley’s winners and losers.

"How is the government to determine which economic vision is feasible and which is pie in the sky?" Smith said during a 2011 hearing of the House Judiciary Committee, of which he was chair at the time. "How will it root out schemes proposed simply to procure a visa?"

The Center for Immigration Studies (CIS), a Washington, DC-based nonprofit that favors curbing immigration, has been among the most outspoken critics of startup visa proposals, which it sees as an unnecessary addition to an already bloated system.

"We're not dealing with refugees. We're dealing with the best and the brightest."

"We're not dealing with refugees," CIS Fellow David North told The Verge. "We’re not dealing with crippled old folks or disabled children. We’re dealing with the best and the brightest. This is a very privileged class, and we have lots of ways that people like that can come to the States and set up their companies."

North acknowledges that the alphabet soup of current immigration laws can be difficult to decipher, but insists that it just takes a little time and "creative" thinking. Besides, he argued, it’s not as if Silicon Valley is in a state of decay.

"We’ve certainly managed to have an enormously successful tech sector without an entrepreneur visa."

But the sentiment is quite different among the Valley’s most visible leaders and investors. Startup visa proponents such as venture capitalist Fred Wilson have argued that foreign entrepreneurs, almost by definition, would only create more jobs for American workers — a stance that New York City Mayor Michael Bloomberg and others have publicly echoed.

"It's the single stupidest policy the US government has around high-tech immigration," Google chairman Eric Schmidt told the Wall Street Journal in November. "These people will create billions of dollars in investment in the economy and provide us with the ability to be world class in every industry."

"It's the single stupidest policy the US government has around high-tech immigration."

Recent months have seen reform advocates rally around Startup Act 2.0 — an aptly-named reboot that would allow foreign entrepreneurs to remain in the US as long as they procure at least $100,000 in funding and create at least two American jobs during their first year.

The proposed legislation was introduced with bipartisan support last year and has yet to make it out of committee. With a new Congress now in power and immigration at the forefront of President Obama’s second term agenda, there is some hope that a renewed campaign could help the Startup Act 2.0 avoid the fate of its predecessors — but early signs point to lingering uncertainty.

This week, a bipartisan group of eight senators announced plans to introduce new legislation that calls for sweeping changes to US immigration policy, including a pathway to citizenship for the estimated 11 million people living in the country illegally. Yesterday, President Obama, who made immigration reform a centerpiece of his inauguration speech, supported that plan, and urged Congress to act. Although the proposal calls for an unspecified increase in green cards for engineering graduates, there has been no indication that it will include a startup visa provision.

A standalone plan known as the Immigration Innovation Act takes a slightly more narrow approach, calling for an expansion of the H-1B visa for foreign graduates with advanced degrees in technical fields. It’s been met with largely positive feedback from major tech companies, including both Google and Microsoft, though in its current form, the bill would only have an impact on graduates joining established firms — not entrepreneurs looking to set out on their own.

The fear among many startup visa advocates is that their cause may get lost amid the Congressional rush to pass comprehensive, rather than piecemeal reform. At a time when both Republicans and Democrats are battling for the prized Hispanic vote, spurring entrepreneurship in the Valley likely won’t be as politically imperative as offering undocumented workers a path to citizenship or securing US borders.


The White House, however, may offer a glimmer of hope. Last year, Obama came out in support of a startup visa program that "would allow foreign entrepreneurs who receive financing from U.S. investors to come to the U.S. to start their businesses, and remain permanently if their companies create jobs for American workers and generate revenue."

The president reiterated this stance at a speech in Las Vegas on Tuesday, where he laid out the White House’s proposed immigration framework for his second term in office:

"Right now in one of those classrooms there are students wresting with how to turn their big idea — their Intel or Instagram — into a big business. We're giving them all the skills they need to figure that out, but then we're going to turn around and tell them to start that business and create those jobs in India or China or Mexico or someplace else. That's not how you grow new industries in America. That's how you give new industries to our competitors."

The president’s second-term blueprint includes a provision that calls for the creation of a startup visa, but as recent history has proven, a White House endorsement does not guarantee ratification. The president will likely only present his proposal to Congress in the event that the Senate’s comprehensive reform package is derailed. Even if it does come up for debate, it’s hard to predict whether the startup visa provision — a needle in the president’s ambitious policy haystack — will actually survive the machinations of a still-divided Congress.

The fate of the startup visa will ultimately be determined by what happens on Capitol Hill in the coming months, but Obama, at least, seems intent on pushing for change, as he stressed during his inauguration speech earlier this month.

"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."

Image Credits: Library of Congress, Wikimedia, Shutterstock, yuyang226, sineakee

"Our journey is not complete until bright young students and engineers are enlisted in our workforce rather than expelled from our country."
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