New startup rule will increase immigrants’ impact on US entrepreneurship

New startup rule will increase immigrants’ impact on US entrepreneurship

Research shows that immigrants are 15 percent of the U.S. population, but build a quarter of the country’s businesses. A new executive order wants to help them create more.

On September 4, 1998, a Russian immigrant launched his first startup at Stanford University. 18 years later, that former startup boasts seven products with more than one billion users; over 62,000 employees; and $21.5 billion in revenue as of Q2 2016. Google’s anniversary this year was preceded by executive action to bring more entrepreneurs to the States.

On August 26, the Department of Homeland Security (DHS) published the White House’s International Entrepreneur Rule – a program that grants visas to immigrant entrepreneurs for up to two years. Eligibility for this new visa requires that foreign-born founders:

  • Own at least 15 percent of a US-based startup;
  • Play a central operational role and demonstrate their company’s growth potential;
  • Have raised either $345,000 from private investors or $100,000 from government sources.

Entrepreneurs who demonstrate success on their two-year visa could apply for an additional three years if their startups show continued benefits to the U.S. economy. Requirements to stay include double-digit annual revenue growth, at least $500,000 in revenue, and a minimum of 10 full-time jobs per startup.

The launch of this new “startup visa” coincides with new research that shows how immigrants contribute to the U.S. economy. The results set a strong precedent for helping immigrants launch U.S.-based startups.

Outsized influence

Immigration advocates often cite founders like Brin and Elon Musk as success stories. But William Kerr, a Professor of Business Administration at Harvard Business School, noticed a lack of data showing how successful immigrants are at creating companies and building new jobs.

So, he partnered with his wife Sari Pekkala Kerr, a labor economist at Wellesley College, to track immigrants’ entrepreneurial activity. They analyzed employment data from 200 million Americans between 1992 and 2011 using the U.S. Census Bureau’s Longitudinal Employer Household Database (LEHD).

Their results were published in a working paper by the National Bureau of Economic Research on August 18. They are the first conclusive research to show that the immigrant percentage of entrepreneurship is growing over time, from 17 percent in 1995 to 28 percent in 2008.

This research also shows that immigrants contribute to U.S. entrepreneurship at an outsized rate; 15 percent of the U.S. population during their sample period were immigrants, but 24 percent of entrepreneurs during that period were immigrants.

Short-term loss, long-term gain

Kerr and Pekkala Kerr found equally surprising results when they measured long-term health of immigrant-founded businesses. Their data showed that these businesses were more likely to follow an “up or out” dynamic. They were more susceptible to failure, but the businesses that did survive saw stronger employment growth.

Further analysis showed that immigrants tend to start businesses in more high-risk/high-reward areas, like California’s Silicon Valley. When Kerr and Pekkala Kerr controlled for industry and geography, they found that startups founded by immigrants showed similar growth rates to those founded by natives.

Barriers to entry into startup scene

This study’s relevance to the International Entrepreneur Rule is not without limitations. Kerr and Pekkala Kerr’s analysis revealed that founders who immigrated to the States as children – like Brin – built more successful businesses than entrepreneurs who come as adults. In that sense, the long-term success of the International Entrepreneur Rule is a gamble.

This Rule’s larger gamble is the lack of legislation. Efforts to get a “startup visa” off the ground in Congress have been lost in immigration rhetoric. The International Entrepreneur Rule is an executive order from the Obama administration.

But as it stands, immigrant entrepreneurs who meet the Rule’s standards will be on parole. The DHS can authorize extended immigration parole on a case-by-case basis if “significant public benefit” is proven. This parole status can be revoked at any time during its five-year period.

For immigrants who already work in high-risk industries, this lack of security could impede their track to corporate profitability (the average IPO-track startup takes seven years to exit). And since the DHS will approve immigrants on a case-by-case basis, the application process is insecure. It also runs the risk of being arbitrary; social entrepreneurs who want to fund nonprofits could be just one group at risk of exclusion.

The DHS will accept public comment on the International Entrepreneurship Rule for 45 days. The Obama administration’s goal is to enact the Rule before his term ends. It is the first step on a long road. But since greater risks to immigration reform lie along this path – including the elections of the next U.S. President and members of Congress – this Rule is the best first step for now.

Categories: Economics, North America

About Author

Lauren Maffeo

Lauren Maffeo has reported on and worked within the global tech sector. In 2012, Lauren earned commission from the government of Taiwan to report on the island's media market -- the largest, freest market on the Asian continent. Lauren earned her MSc from The London School of Economics and her BA from The Catholic University of America, where she was a CUA Oxford Honors Scholar at St. Catherine's College, Oxford.