Interpreting the Startup Visa Act

Insights June 22, 2011

On March 14, 2011, Senators John Kerry and Richard Lugar introduced a bill titled the Startup Visa Act of 2011, which is an updated version of a 2010 bill.  If passed, the act would provide temporary work visas to various kinds of foreign workers if certain financial benchmarks are met.

1.       For foreign entrepreneurs: (a) a qualified US investor must agree to financially sponsor the entrepreneur’s venture with a minimum investment of $100,000, (b) after two years, the startup must have created 5 new American jobs, and (c) within two years, the startup must either have raised over $500,000 in financing or be generating over $500,000 in yearly revenue.  The investor must be either a venture capital firm, a U.S. citizen who has made at least two equity investments of at least $50,000 for the previous three years (a “super angel”), or a qualified government entity.

2.       For foreign workers on H-1B (specialty occupation) visa,  or technology (science, engineering, math, computer science) graduates from U.S. universities: They must (a) have an annual income of at least $30,000, or assets of at least $60,000, (b) have a qualified U.S. investor commit at least $20,000 to their venture, (c) after two years, the startup must have created three new jobs and  (d) either raised over $100,000 in financing, or be generating more than $100,000 in yearly revenue.

3.       For foreign entrepreneurs whose startup has generated at least $100,000 in sales from within the U.S.: (a) two years after, the startup must have created three new American jobs, and (b) either have raised over $100,000 in financing or be earning more than $100,000 in yearly revenue.

It’s important to note that this bill doesn’t actually create a new visa class for entrepreneurs.  The bill would create EB-6 visas, which would be a subset of the existing EB-5 visa class.  EB-5 visas are granted to foreign entrepreneurs who (a) invest at least $1,000,000 in their business in the U.S., and (b) have at least 10 American employees.

Being a subset of EB-5, this bill won’t impact the absolute number of foreign entrepreneurs getting temporary work visas.  Because of the lower investment requirements and more broad qualifications, what will change is the composition of the foreign entrepreneurs attaining work visas under Senator Kerry and Lugar’s proposed bill, characterized by less business experience, smaller reputations, less developed investor relations, and likely younger in age.

This bill is timely, if not slightly overdue.  Research has shown that 52% of Silicon Valley startups founded from 1995-2005 were founded by immigrants.  The ratio for the past 5 years is likely just as high, as worldwide barriers to entry have fallen drastically with the current proliferation of Internet and mobile services.  Unfortunately, many of the same immigrants have been stuck in what is deemed “immigration limbo.”  This occurs often with temporary work visas – because of their temporary nature, workers are unable to make long-term plans in regard to both work and family, like starting companies or buying houses.  And once they enter the queue for the extremely limited number of permanent resident visas, they are forbidden from accepting work promotions, or even changing jobs.  Looming over their heads is the worst part yet: they would be required to leave the U.S. immediately if they are let go by their employers.  The Startup Visa Act would be a boon for such people.

However, some have speculated that the Startup Visa Act’s aim is slightly off the mark.  The bill makes the wrong assumption that all startups raise angel or venture capital.  Research (http://wadhwa.com/2010/11/21/venture-or-angel-capital-isn%E2%80%99t-the-end%E2%80%94it%E2%80%99s-the-means/) has shown that a majority of successful startups do not raise any capital, whether by choice or not.  And there is simply a lesser need to do so, because beta versions of companies like Facebook and Groupon can be developed for only a few thousand these days.  Few startups besides TechCrunch and VentureBeat darlings raise this kind of initial capital, even those situated in Silicon Valley that have long-standing relationships with venture capital firms and so-called super angels.

Senator Kerry and Lugar’s bill would require foreign entrepreneurs to solicit investors regardless of need, which could divert valuable resources and time from actually developing their businesses.  Of course, venture capitalists figure to benefit as their roles will become practically institutionalized and procedural for foreign entrepreneurs and businesses.

Also debatable is whether the bill will gain the traction necessary in the legislature.  Aneesh Chopra, the U.S.’s CTO, has stated that the Obama administration would only support the Startup Visa Act “in the context of comprehensive immigration reform.”  This looks to be a big blow, as the bill may be unfairly grouped with unrelated issues such as illegal immigration and border control.

Notable supporters include Fred Wilson of Union Square Ventures, Paul Graham of Y Combinator and Reid Hoffman of LinkedIn.