The January 2013 issue of Maryland Entrepreneur Quarterly had immigrant entrepreneurs as its theme. Several articles cited the achievements of individuals who took advantage of opportunities in America to build and sustain successful enterprises.
There is an important connection between immigrant entrepreneurs and this month’s theme of inventions and ideas used to create businesses that is represented by pending legislation in the United States Congress referred to as Startup Act 3.0.
One of the outcomes subsequent to the terrorist attacks of Sept. 11, 2001, was more restrictions on the ability of foreigners to enter the U.S. Academicians and businesspeople noted that these restrictions created a brain drain in the areas of science, technology, engineering and math (STEM) that was exacerbated by insufficient STEM pursuits by American students.
Results from attempts to remedy this situation have been mixed, but there is pending legislation before Congress called the Startup Act 3.0 that could jump-start opportunities for immigrant entrepreneurs.
According to the Ewing Marion Kaufmann Foundation (Kaufmann Foundation), startup businesses create an average of 3 million new jobs each year, often from entrepreneurial endeavors founded by immigrants. Technology-oriented startups such as Google, Yahoo! and eBay were founded by immigrants.
In recognition of the importance of immigrant entrepreneurs, a bipartisan group of senators, with the support of President Barack Obama, introduced the Startup Act 3.0, which is a comprehensive jobs and high-skilled immigration reform bill. The Startup Act 3.0 would provide Entrepreneur Visas for a fixed pool of 75,000 foreign-born individuals who have H-1B visas or F-1 student visas and who create businesses in the United States.
By the end of the first year the business exists, these entrepreneurs would be required to have a minimum of two full-time, non-family employees and a minimum of $100,000 invested in the business.
The Kaufmann Foundation used data from the U.S. Census Bureau Business Dynamic Statistics (BDS) to evaluate the potential of Startup 3.0 under three scenarios.
If Entrepreneur Visas were available in 2014 and all 75,000 slots were filled, BDS estimates that nearly half of the firms would still be in business after four years, and that the openings created by failed firms would be filled by new Entrepreneur Visa applicants. In two of the scenarios, the study by the Kaufmann Foundation estimates that, over a 10-year period, between 500,000 and 889,000 jobs would be created, leading to an increase in Gross Domestic Product (GDP) of 0.5% and 1.0%, respectively.
Under the third scenario, half of the businesses would be technology and engineering firms established by holders of H-1B visas, who tend to be employed in science, technology and engineering. Studies have shown that immigrant-founded engineering and technology startups employ an average of more than 21 people per company.
Using this assumption, the Startup Act 3.0 would facilitate the creation of a minimum of 1.6 million jobs and a GDP increase of 1.6% over a 10-year period. The GDP increase translates into $224 billion of economic activity.
Estimates of job creation and GDP increases could be conservative. A National Foundation for American Policy evaluation of the top 50 venture capital-backed businesses in 2011 indicated that 24 of those businesses were co-founded by immigrants. The average age of those companies was 5.8 years, and they added 27 new jobs each year, which exceeded assumptions made in the Kaufmann Foundation study.
“The businesses high-skilled immigrants create are a source of jobs for Americans, but at a time when our economy needs jobs first and foremost, our archaic visa policies has America falling behind,” said Startup 3.0 co-sponsor Sen. Jerry Moran (R. Kan.).
“We are losing jobs and talent by the day to countries like Canada, Chile and the United Kingdom that have realized entrepreneurs have been the secret to America’s economic success and have changed their visa policies to aggressively court these job creators,” said Moran. “Startup Act 3.0 would create jobs for Americans by keeping highly-skilled and entrepreneurial immigrants in the United States where their talent and new ideas can fuel economic growth. We don’t have the luxury of time; if Congress fails to act, we will lose the next generation of great entrepreneurs and the jobs they create.”
“There’s hope that 2013 finally may be the year the United States implements comprehensive immigration reform,” said Dane Stangler, director of research and policy at the Kauffman Foundation. “However, that legislation would fall short if it fails to create a new visa for the thousands of potential foreign-born entrepreneurs who are already in the country, particularly those who are likely to start technology and engineering firms. Increasing their numbers would accelerate U.S. economic and job growth and help offset the steadily declining numbers of native entrepreneurs.”
In addition to the Entrepreneur Visas, Startup 3.0 offers other benefits to entrepreneurs and American businesses, including the elimination of country-caps for immigrants with employment-based visas. This would allow businesses to recruit global talent with a minimum of bureaucratic interference.
Startup 3.0 includes a capital gains tax exemption for startup companies. According to the Kauffmann Foundation, eliminating this capital gains tax will create $7.5 billion of investment available for startup firms. Startup firms less than 5 years old and making under $5 million would be eligible for research and development tax credits applicable to their payroll tax liability, which could facilitate job creation.
The startup bill promotes technology transfer and commercialization by providing grants to universities to enhance the ability of companies to commercialize their products. Finally, the bill includes a mandate that allows U.S.-educated foreign students who graduate with a master’s degree or a Ph.D. in one of the STEM areas a green card and permission to remain in the United States.
This is the third attempt at passing such a bill. While not knowing the details of the failure of the previous attempts, it is not unreasonable to assume that controversy over immigration reform was the cause of defeat.
Congress has not exactly covered itself with glory in the last several years regarding myriad issues, but it has a clear opportunity to contribute to the growth of the American economy and should act now to pass the Startup Act 3.0. As stated by Sen. Moran, America does not have the luxury of time.
Michael A. Mobley is managing partner of Obsidian Management LLC in Ellicott City. He may be reached at 410-418-4453 or firstname.lastname@example.org.