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The truth about the Startup Visa

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Pascal-Emmanuel Gobry (@pegobry) recently authored an article that ran on Business Insider. The article was sensationally titled ‘The Startup Visa Act Must Be Stopped‘ and in it Pascal describes his reservations about the Startup Visa proposal. I don’t know Pascal, but I do hope that he, and others, will read and consider this response to his article.

One of the main concerns Pascal raises is that the Startup Visa would depend too much on investors. Well, let’s see. If you have a million dollars to spare, then you could apply for the EB-5 visa and come to the US on that basis. However, most startup entrepreneurs I’ve met, don’t have that kind of money laying around to invest personally. The Startup Visa proposes that instead of the funding coming from the entrepreneur himself/herself, that funding can come from US-based superangels and/or VCs. One of the big concerns of the US immigration system is that they don’t want foreigners to come to the US without having the means to support themselves (and thereby become a burden on the State). This is true of almost all visa categories — even to come as a tourist you need to either show that you have sufficient funds for the duration of your stay, or, that you have a US-based financial sponsor. The same applies for a student visa. For a work (H-1B) visa, the company needs to demonstrate that it has the financial means to pay the prevailing wage. So by changing who funds a company to superangels or VCs, rather than the foreign entrepreneur, we’re trying to actually make it possible for more entrepreneurs to come to the US. There has to be some source of funding/support — superangels and VCs are the logical sources for that. This is *not* some underhanded play at having more leverage over entrepreneurs.

Most entrepreneurs (myself included at one point) over-estimate the issues of “control” in a company. Investors do *not* want to run your company. They simply want *you* to run it well. If they wanted to run a company — they could go start their own (especially for those of us who have been entrepreneurs already). If you don’t want to raise money from investors, and choose to do it organically, or by using personal resources, that’s great and there is nothing in the Startup Visa stopping you from doing that. Having funding tied to the Startup Visa makes it possible for the fledgling startup to indeed be able to create jobs and hire people in the US.

Pascal argues that the Startup Visa increases, rather than decreases the risk for entrepreneurs. I don’t see how this is the case. I came to the US on a student visa, and decided to stay to start a company (for the full story, see my previous post on My Story and Support for the Founders Visa). I had nine months of practical training left to get the company going. If it succeeded, I still needed to cross the hurdle of getting a visa. In the case of the Startup Visa you get two years to start, with extensions thereafter. If you fail, there is nothing preventing you from getting a new Startup Visa — provided you can find sources for funding for your next idea. Or, if you want to get a job you can apply for a visa for that too. The Startup Visa doesn’t change the risks for an entrepreneur. I chose to start my company in the US because I felt that it was the right place to do it — it was my choice. Having made that choice, the Startup Visa makes it easier for an entrepreneur like me to come to the US, or to stay in the US, as the case may be.

Showing steady progress across one or more measures (making revenue, creating jobs, securing additional funding) are all parts of the Startup Visa proposal. That’s how it should be in any meritocracy. When I entered the PhD program at Stanford, we were told that one of the conditions for us to remain in the program is to demonstrate Reasonable Progress (see Section II, Guidelines for Reasonable Progress), otherwise you don’t get to stay.

Finally, Pascal argues that the Startup Visa will be bad for investors as entrepreneurs will self-select to start companies in their own countries, or, wait till they have a million dollars to put down for an EB-5. Well, this is how it is right now. There is no easy way for a foreign entrepreneur (who doesn’t have a million dollars) to come to the US under the current system. If anything, the Startup Visa makes this easier, not harder. So I fail to see how this would be bad for the US, or bad for US investors (and yes, we are focusing on the US here).

Among a bunch of other smaller points Pascal mentions that the Startup Visa doesn’t give you a greencard right away. Yes, that too is exactly how it should be. When my wife and I got married, she didn’t get a permanent greencard right away. She got a conditional greencard — and the condition needs to be removed after two years. These are safeguards that the system needs to prevent the system from being gamed (granted it’s not always foolproof). In the case of marriage, it is to ensure that it’s not a sham marriage. In the case of the Startup Visa it is to be able to verify that it is indeed a bonafide startup that contributes positively to the US economy.

He also points out that the Startup Visa doesn’t increase the total number of visas, but shares the quota from the EB-5 visa. That’s because the EB-5 visa is severely under-utilized (Annual quota: 10,000, 2008: 1,443. 2009: 4,218 – tripled after creation of ‘regional centers’). There aren’t a lot of startup entrepreneurs who can afford to invest a million dollars from their personal net worth (the investment cannot be from a third party and the EB-5 process requires proof of this in the form of documentation for lawful source of funds). By repurposing an unused portion of the EB-5 visa category, the Startup Visa will allow more entrepreneurs to come to the US, without having to increase the overall allocation for visas.

I am an immigrant founder and I have contributed to the creation of over 100 jobs in the US based on my own startups, and startups I have invested in. In the past few years I have invested in two companies that have had immigrant founders — in both cases the founders had PhDs from Stanford and were able to make the case for an EB-1 (Alien of Extra-ordinary Ability) and an EB-2 (National Interest) visa. At the same time, I’ve met numerous would-be startups where the founders don’t have advanced degrees. They are stuck working at companies in the US, biding their time till they can eventually get their greencard and then be able to start their own companies. These are highly qualified people — they would be able to raise money for their companies, but they still cannot venture out on their own because of visa issues. The Startup Visa addresses this.

Pascal goes on to make some good suggestions about other reforms in the US immigration policy. Personally, I’m in favor of these changes. But, I am also a realist. Immigration is a very hot-button topic in the US. Any changes to the overall system will be part of the comprehensive immigration reform package, but we have no idea when that might happen. The Startup Visa Act is a highly focused and pointed bill that aims to attract talented entrepreneurs to the US to build their companies here, create jobs here, and to contribute to the US economy — at a time when we need it most.

(The opinions in this post are solely of the author @manukumar and all the usual legal disclaimers apply)

  • HardAssets

    There’s no need for “comprehensive immigration reform” but I do like these suggestions!

  • I agree with you Manu, but there could be considerable difference in sophistication between EB-6 and EB-5 applicants.

  • Hi Manu,
    there is always the option for an E2 on which you don’t need such a big amount of money as EB5.

    Thx
    A.

  • I second that, Matt.

  • Honestly, I think the missing piece of the marketing equation here is China. The public needs to get it hammered into their brain that unless we pass the Startup Visa and reforms like it, we’re gonna be eating China’s dust in 10 years. Fear is a powerful weapon, but it must be wielded effectively to create good.

  • PEG

    Hi,

    First of all, thanks for your thoughtful post. I’ve had some great responses to my post (some not great). Again, we’re all working toward the same goal here and my point was not to disparage anyone but to spark productive debate so that we can create the right environment for immigrant entrepreneurs to set up in the US.

    Second of all you say that my worry about the power the Startup Visa puts in investors hands is overblown. I hope you’re right! As a serial entrepreneur and advisor to several startups I think that may be naïve. Many investors are great people who wouldn’t dream of pulling tricks just to get a bigger piece or more control of a company. But are they the majority? Or even a big minority?

    The example I put to Dave McClure when he commented to my post is how an angel/VC responds to an early stage startup he wants to invest in that’s ramen profitable vs one that’s close to running out of cash. All else being equal, I think it’s fair to say most investors would behave differently, because they know they have more leverage in one situation than in the other. Paul Graham himself, who originated the idea of the Founders Visa, routinely and vehemently advises his startups to get to ramen profitability ASAP and to be wary of investors who stall and try other tactics to get the most they can out of a deal.

    Now imagine the same case, but on the funding not only hangs the future of the company but the future of the entrepreneur himself, ie the right to stay and work in the US. What percentage of investors do you think WOULDN’T take advantage of this situation? 5%? 10%? 15%? More? Think about it honestly.

    Your argument that the situation is already horrible and so anything would improve the situation might be right, but this is why I propose other policy ideas to coalesce the tech community around. I think they’d be better, and I also think that, precisely because, as you rightly point out, immigration is such a politically hot topic, they’d be more likely to pass because they’re more “technical” changes. One thing I didn’t mention in my post is that even if the Startup Visa is everything its proponents believe (and again, I dearly hope they’re right), anyone should be afraid of what it looks like after Congress has its way with it…

    Those are my early thoughts. I will probably have a more coherent response up on Business Insider some time next week.

    • @PEG: I am huge fan of companies becoming ‘ramen profitable’. Having a profitable company, certainly makes for a more valuable company, and a better deal for the entrepreneurs than a company that is close to running out of cash. Those are just the dynamics of any fund-raising dialog. I fail to see how that implies that the Startup Visa is a bad bill and should be stopped.

      You’re assuming that the Startup Visa will be used as a stick. What you’re forgetting is that without it the company may not be able to raise capital to begin with. I was in this situation with my first startup. I couldn’t go out and raise capital from investors because I was on a student visa and no investor would want to invest if they know that I would have to leave the country because of visa issues. It is a huge risk for an investor to take. I overcame this by having my visa and financing happen in perfect concert with each other — it was a real feat, and not one that’s easy to pull off, especially now given the recent memos from the USCIS on H-1B visas. Knowing that the investment can entitle the entrepreneur to a visa makes it less risky for investors, and more likely that they would actually invest in the company.

      I was fortunate to have great investors in both my startups. But, as you pointed out, not all investors are the same. To that I would say that it is up to the entrepreneur to pick the investors they want to work with (and you do that by being ramen profitable, so that more investors want to fund the company. You build all the leverage you can to attract the right investors).

      It is a choice for the entrepreneur to use a Startup Visa at all — they could very well choose to stay in their home country, build the company organically, or use any of the other visa types to come to the US. The Startup Visa opens one new channel, it doesn’t close any of the other paths.

      Doing a startup isn’t just about the future of the company. It is about the future of the entrepreneur. The two are inextricably linked together. When I decided to stay in the US for my company, I made a choice not just for my company, but for my life. Having investors was part of that risk equation, and IMHO the risk isn’t any different with the Startup Visa.

      Thanks for the healthy debate on this topic.