‘American Made’ study proves H-1B overhaul is overdue

As a nation of immigrants, America would seem to have a natural advantage when it comes to conducting a rational and nuanced immigration policy debate. Unfortunately, this year proved just the opposite. By focusing the public discourse almost exclusively on illegal immigrants—the most politically charged aspect of the issue—political strategists turned immigration from a U.S. edge to a divisive wedge.

Over the years, venture capitalists have tended to emphasize the “edge” aspect, viewing immigration policy less as a blunt political instrument and more as a precision tool for stimulating innovation and economic growth. “American Made,” a recently released study measuring the impact of foreign-born entrepreneurs on the U.S. economy not only validates this view, but also suggests grave economic consequences for continuing to let the emotionally charged debate over illegal immigrants distract us from reforming our policies toward legal immigrants—especially those with highly developed talents and skill sets.

“American Made” was commissioned by the NVCA and conducted by Stuart Anderson of the National Foundation for American Policy and Michaela Platzer of Content First. The study measures the impact of immigrant entrepreneurs and professionals on the U.S. economy, as well as on our ability to compete in the global innovation marketplace. It began by examining data from Thomason Financial regarding the nativity of all U.S. venture-backed publicly traded companies and the impact these companies have on our economy.

In the “American Made” report, John Doerr of Kleiner Perkins Caufield & Byers, says: “Imagine innovation in America without Andy Grove, without Jerry Yang, without Sergey Brin—Hungarian, Chinese and Russian. These immigrants have contributed enormously to innovation and our well-being.”

In terms of positive effects, the numbers are simply staggering: Over the past 15 years, immigrants have started 1 in 4 of all the venture-backed companies that have gone public. These companies account for more than $500 billion of total U.S. market capitalization and include such industry leaders as Intel, Sun Microsystems, eBay, Yahoo and Google, just to name a few. It’s hard to imagine the U.S. economic landscape without these luminaries. That’s a tremendous amount of wealth and opportunity created by a relatively small group (approximately 8.7% of the U.S. population).

Strength in numbers

Even more pronounced is the impact that these relatively unsung heroes have had on U.S. innovation leadership, which most economists recognize as the key to our continued health and growth. According to the research, immigrant-founded venture-backed companies operate most commonly in cutting edge sectors such as high technology manufacturing, information technology and life sciences. In high tech manufacturing alone, 40% of U.S. venture-backed companies trading on U.S. exchanges today were started by immigrants. Furthermore, these same companies employ more than half of the total workers in this sector.

Over the past 15 years, immigrants have started 1 in 4 of all the venture-backed companies that have gone public.”

Mark Heesen, President, NVCA

The survey found that immigrant-founded, venture-backed public companies today employ an estimated 220,000 people in the United States and over 400,000 people globally. To appreciate the full economic impact, however, one must consider quality as much as quantity. Especially in the tech sectors, immigrant-founded, venture-backed companies tend to generate white collar positions that pay high salaries, which in turn help to create wealth and raise living standards.

The data collected on formerly venture-backed public companies tells only part of the story. The current crop of immigrant founders at privately held venture-backed startups also plays a critical role, especially if this impressive level of impact is to be sustained. For this reason, the authors of the study also conducted an extensive survey of current venture-backed startups to gain a wider perspective on the foreign-born phenomenon borne out by the public data.

The insights of this survey, which netted 342 responses, were equally telling. Among today’s cutting edge, privately held venture-backed companies, the percentage of immigrant founders remains as high (perhaps even higher) than their public counterparts. Of those responding to the NVCA survey, nearly half (47%) of the founders of private companies were immigrants.

In other important respects, these private companies mirror their public counterparts closely. In terms of job creation potential, the NVCA survey found that almost two-thirds of the immigrant founders of privately held venture-backed companies have already started or intend to start more companies in the United States.

The concentration of immigrant-founded venture companies in technology and other innovation-driven fields also remained consistent, as respondents fell most commonly into the software, semiconductor and life sciences sectors. The focus on innovation was further evidenced by the number of patents held by these companies. Respondents with foreign-born founders reported holding average of 14.5 patents, with a median of four.

New policy overdue

Although the impact of immigrant entrepreneurs on the U.S. innovation economy has been enormous, U.S. immigration policy has kept their numbers largely in check. Specifically, Congress has declined to raise the annual cap on H-1B visas, which provide skilled foreign nationals with the opportunity to come to the United States to work. As the research suggests, this stance unduly constrains one of the U.S. economy’s most crucial sources of growth. It also bodes ill for America’s ability to continue to draw the world’s brightest and most motivated minds.

The NVCA survey found that almost two-thirds of the immigrant founders of privately held venture-backed companies have already started or intend to start more companies in the United States.”

Mark Heesen, President, NVCA

Responses to the NVCA survey bear this out. More than two-thirds of immigrant entrepreneurs agreed with the notion that U.S. immigration policy has made it more difficult to start a business in America than it was in the past. Correspondingly, 66% of respondents who use H-1B visas indicated that “current U.S. immigration laws affecting skilled professionals harm American competitiveness.”

Regarding the issues of global competitiveness and outsourcing—two of the hottest topics among business owners and politicians alike—the survey responses were equally ominous. Among companies that use H-1B visas, nearly 40% said the lack of H-1B visas caused by Congress’s decision to not raise the H-1B cap has “negatively impacted [their] company when competing against other firms globally.” In addition, one-third of the respondents indicated that the lack of H-1B visas had influenced their firm’s decision to place more personnel in facilities abroad. In fact, this may understate the phenomenon, as smaller companies with no overseas operations may not possess the option of placing personnel abroad.

The H-1B dilemma would not be so acute if it were not accompanied by a simultaneous softening of the domestic science and engineering labor pool. American universities simply aren’t producing a sufficient amount of graduates with the requisite skills. Again, foreign nationals have traditionally picked up the slack in terms of numbers, but that trend appears to be declining. According to the most recent report by the National Science Foundation, first-time science and engineering graduate enrollment for international students declined for the third year in a row in 2004, which represents a decline of 21% over that period.

Despite the growing threats to American innovation leadership and competitiveness posed by the current immigration impasse, it’s not too late. Nearly all the immigrant founders in private companies (95%) say they would still start their companies in the United States if given the choice today. This, however, is a sentiment that we must continue to nurture through every aspect of our immigration policy. That means not only raising the H-1B cap, but also making other changes that accommodate the development of these critical participants in our economy.

After all, few of the immigrant entrepreneurs came to America actually ready to start a company capable of attracting venture capital. Most entered the country either as children, teenagers or graduate students, or were hired on H-1B visas to begin a first job while in their mid-twenties. Once here, however, they enhanced all of our lives by following their dreams. And most have become American citizens. That’s why we must ensure that the pursuit of such dreams is open to as many of the world’s best and brightest as possible through smart policy.

“American Made: The Impact of Immigrant Entrepreneurs and Professionals on U.S. Competitiveness” is part of the NVCA’s Maximizing America’s Growth for the Nation’s Entrepreneurs and Technologists (MAGNET USA) innovative leadership initiative aimed at strengthening America’s competitive position in an increasingly global economy. An electronic copy of “American Made” is available at www.nvca.org.Mark Heesen is President of the National Venture Capital Association. He may be reached at mheesen@nvca.org.