The Heroes of America’s Startup Economy Weren’t Born in America – INC

From Alexander Graham Bell to Tesla’s Elon Musk, foreign-born entrepreneurs have historically been a key driver of American innovation ( Startup Economy )–and their presence has grown steadily in recent decades.

According to the Entrepreneurship Rate indicator of the Inc. Entrepreneurship Index, Inc.’s proprietary benchmarked score representing the health of American startups, the percentage of entrepreneurs who are immigrants is currently close to a 20-year high. Today, they are a large reason the Inc. Entrepreneurship Index has remained relatively stable at 87 out of 100 in the first quarter of 2018, down almost imperceptibly from 88 out of 100 in the quarter prior. It’s no coincidence then that the heart of America’s startup scene–Silicon Valley–is San Jose. With the highest percentage of immigrant entrepreneurs in the U.S., it leads Miami, Los Angeles, San Francisco, and New York.

The most prolific startup markets in the country are flush with foreign-born founders

While the overall 20- to 35-year-old U.S. population lacks the desire their parents had to start a business for themselves, immigrant entrepreneurs of all ages are taking advantage of healthy access to capital and forging on through remarkably tight labor conditions. (Currently, the unemployment rate is just 3.9 percent, the lowest since 2000.) Data from the U.S. Census Bureau’s Annual Survey of Entrepreneurs shows that the percentage of immigrant-owned businesses with employees has gone up from 14.3 percent in 2007 to 16.1 percent in 2015–the most recent year for which data is available.

That’s a big surge of economic activity, and it’s not limited to small firms. Immigrants start and run businesses of every type and scale, from small shops in Main Street to high-growth tech companies and major corporations. Forty-three percent of Fortune 500 companies–the 500 private and public American companies with the highest annual revenue–were started by immigrants and their children. Moreover, the National Foundation for American Policy reports that over half of billion-dollar tech unicorn companies have an immigrant co-founder.

Foreign-born entrepreneurs aren’t just difference makers in the American economy. The Global Startup Ecosystem Report launched by Startup Genome, where I lead research, found that about 20 percent of the world’s tech founders are immigrants, even though immigrants only make up about 4 percent of the world’s population.

A composite index scored by the benchmark method, the Inc. Entrepreneurship Index is holding steady as job growth stalls in the tight labor market.

“Immigrants have been and will continue to be necessary for top American ecosystems to grow more than local resources alone would allow–and therefore create more jobs and economic activity,” says J.F. Gauthier, an immigrant and founder of the analytics and advisory Startup Genome. “Immigrants also bring global relationships, the other key ingredient to the production of billion-dollar startups, and even more jobs.”

To capitalize on this self-starter energy, at least 15 countries currently offer a startup visa, or a visa aimed at those with the resources and the intent to start a business in their new home. The United States is not one of them and has recently taken steps to undo the progress made by the Obama administration in 2016, when it passed the closest thing the U.S. had to a so-called startup visa: the International Entrepreneur Rule. This rule was meant to better enable immigrant entrepreneurs to launch high-growth startups in the U.S. rather than abroad. The Department of Homeland Security has delayed the program’s implementation twice–although it had remained in place due to legal challenges from the National Venture Capital Association, or NVCA. Last week, the DHS announced its intention to eliminate the program altogether.

As you would expect, the NVCA isn’t pleased. Policymakers should be working to “make the United States the hands-down best place in the world to start a high-growth company,” says to Jeff Farrah, general counsel at the National Venture Capital Association. “Immigration policy is a key component of that, but disturbingly our country is pushing entrepreneurs away rather than welcoming them.”

Canada’s Gain

America’s loss is poised to become Canada’s gain, as our neighbors to the north have launched something of an international talent grab–fast tracking skilled worker visas and actively marketing to international hires on American soil. Now-notorious billboards in San Francisco encouraged professionals with H-1B visa problems to “pivot to Canada.” With a strong network of universities feeding talent into the workforce, both Vancouver and Toronto-Waterloo are among the top 20 startup ecosystems in the world, according to Startup Genome’s 2017 annual report. And now, cities like Edmonton, Montreal, Ottawa, and Quebec City are also beefing up their own startup infrastructures.

Top venture capitalist Brad Feld has been one of the more outspoken proponents of an American startup visa and echoes the belief that American backpedaling on the issue has given Canada the chance to become the “next great entrepreneurial tech country.” Writing on his experiences as a startup investor and advisor, Feld has noted that companies he works with are looking into opening their first Canadian offices as a work-around for the U.S. visa problem. Similarly, we see high-growth companies in Canada reporting an increase in U.S.-based job applicants, and tech firms citing the expedited Global Skills Strategy, an expedited approval process for international skilled workers, as an important component of their activities in Canada.

The import of this global skills program–and the U.S.’s embattled H-1B visa program–can’t be understated. After all, the benefits of welcoming workers from around the world are not always immediate. Immigrants who eventually become entrepreneurs come here to establish themselves, but they may not start businesses right away. Consider After William and Margarate Carnegie, who came to the U.S. from Scotland. They labored at low-paying jobs in America, often trading places as the family breadwinner, and never saw even a measurable fraction of the success their son, famed industrialist Andrew Carnegie, achieved here. While Yevgenia and Mikhail Brin were both accomplished academics and researchers when they emigrated with their family from Russia to escape religious discrimination, there was no indication of the entrepreneurial skill their young son Sergey would exhibit when he grew up to co-found Google.

Similarly, research from Stanford University’s Latino Entrepreneurship Initiative, where I have a data science appointment, found that 86 percent of fast-growth Latino immigrant-owned businesses–those with over $1 million in revenue–are owned by millennials who immigrated to the U.S. as children.

A Way Forward

While the federal government has worked to limit immigration to the U.S., some business communities have organized at the local level to make clear to immigrants that they are wanted. Welcoming America, a non-profit that started in Tennessee to celebrate immigrants’ contributions to Nashville’s economy, is now in 50 cities supporting refugees and immigrants with services like small business training and school inclusion programs for kids. Recently, the Kauffman Foundation reported on Columbus Junction, Iowa–a small town that has been rejuvenated after actively courting waves of immigrants from Mexico, Guatemala and Honduras, as well as refugees from Myanmar.

Whether it’s Silicon Valley or small town America, opening the door to global talent brings new skills and makes the hiring pool more competitive. In the history of this country, it’s a strategy that has never failed. International talent has fueled the U.S.’s rise as the global hub for technological innovation, and losing this advantage will come at a cost. A U.S. economy without immigrants will be a U.S. economy without the next Google, Tesla, and SpaceX–and without 860,000 additional job-creating businesses. Several years ago, the idea of “stapling a green card to every STEM advanced degree diploma” got some traction. It might be time to consider stapling one to every venture capital term sheet as well.

About the Inc. Entrepreneurship Index

The Inc. Entrepreneurship Index measures American entrepreneurship every quarter with public data as well as data courtesy of Paychex and Biz2Credit. You can read more on the methodology here.

Biz2Credit is a safe and transparent online credit solutions platform for over 150,000 small- and medium-size- business users and more than 100 major banks, credit rating agencies, and SMB service providers. Learn more about Biz2Credit by visiting biz2credit.com.

Paychex provides HR, retirement, and insurance services for approximately 605,000 payroll clients across more than 100 locations, paying one out of every 12 American private sector employees. Learn more about Paychex by visiting paychex.com, and stay connected on Twitter and LinkedIn.

 By Arnobio MorelixInc. data scientist and Startup Genome research director@amorelix

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