Bad news: the widely-beloved Startup Visa project is a terrible idea — and this is coming from a guy who desperately wants to see it work.
About a year ago, Paul Graham of Y Combinator put out an idea for a Startup Visa that would allow foreign entrepreneurs to set up in the United States if they could raise enough money from institutional investors such as renowned business angels and VC firms.
Brad Feld, a VC at Foundry Group, pounced on the idea, a movement was formed, and recently a bill, the Startup Visa Act, was introduced in the Senate by two prominent senators on the Foreign Relations Committee, John Kerry and Dick Lugar.
Pretty much all the digerati are in love with the idea and believe it will finally allow immigrants to start companies in the US.
As a technology entrepreneur in Paris, who thinks the US is (sadly) still a better place than Europe to start a technology startup and who, in a perfect world, would be starting his next company in New York, I should love this. But I don’t.
For one, getting the visa depends too much on investors. Investors already have too much power in the investor-entrepreneur relationship. If this act is passed, fundraising won’t just affect an entrepreneur’s company, but his or her life. You have to raise that round, or you’ll get deported!
How many terms can a wily investor wring from this new leverage? How much liquidation? How much liquidation preference? What kind of super pro rata rights?
Brad Feld and other Startup Visa supporters like Fred Wilson would doubtlessly argue that they wouldn’t do these kind of dirty things. I believe them, because they realise it’s in their long-term interest to be good to startup founders. But, sadly, people like Brad and Fred are a small minority.
The Startup Visa Act entrenches the idea that entrepreneurs depend on investors and not the other way around. It makes a mockery of the dozens of successful companies that got started and grew successfully without outside institutional investment. Attracting investors shouldn’t be the prerequisite for starting a successful company, it should be a consequence of it.
Another big problem with the Startup Visa Act is that it increases, rather than decreases, risk for the entrepreneurs. Launching a startup by definition means taking on a lot of risk: financial, reputational, you name it. The Startup Visa would increase risk for the entrepreneur by making the stakes so much bigger, by making literally everything depend on success — and not business success, but success how Congress defines it.
Part of the reason why Silicon Valley, and America more generally, is so great for starting companies, is the low cost of failure: if your company fails, people won’t think you’re a loser, and you’ll still be able to get a job. So it’s less daunting to get started. The Startup Visa magically makes the high cost of failure even higher: if you get started and you fail, not only will your dream get crushed, but we’ll kick you out of the country you so desperately wanted to join in the first place.
Finally, the Startup Visa will be bad for investors as well. The best foreign entrepreneurs will self-select away from it, either by starting their companies in their home countries (precisely what the Startup Visa wants to avoid) or by waiting to have enough money for a fair EB-5 visa (at which point it might be too late, because cookie-cutter wantrapreneurs have killed that category to get more Startup Visas).
Also, if foreign entrepreneurs get a green card by raising an additional million dollar round after two years, their incentive is clearly to get that million dollars, at any price, from any “qualified investor” and then bail to start a company on his own terms. This would be bad for everyone, including the investors.
Here are other, more granular problems with the Startup Visa Act (non-wonks might want to skip this part):
- As the Startup Visa Act stands, getting a successful angel round doesn’t even give you a green card. You only get a green card if, two years after that, the company has either created 5 full-time jobs, attracted a million dollars in revenue — or raised an additional million dollars. Unless you meet the first two criteria, for two years you are basically your investors’ toy. If they won’t invest, or if you won’t take their draconian conditions, you’re deported, even after spending two years living in the US. This alone means I’ll probably never apply for one, because I would never tell my wife: “Upset your career, move with me to a different continent — but I don’t know if we’ll still be there two years from now.”
- The Startup Visa Act doesn’t actually create new visas. It just takes existing allotted visas, in the EB-5 class, which allows an immediate green card for entrepreneurs who invest $500,000 or a million dollars in the US. So it actually wouldn’t increase the number of entrepreneurs in the US, it would just change the mix from entrepreneurs who are already successful to add unsuccessful entrepreneurs (by definition, because otherwise they would take the existing EB-5 visa for 500 grand that gives them a green card right away) who are completely beholden to their investors. John Kerry argues that this is no big deal because few of the existing EB-5 visas are granted, even though this article in the Washington Post shows that they are on an upswing.
- John Kerry’s letter endorsing the Act doesn’t make clear who “qualified investors” are. Paul Graham initially suggested that business angels and VCs co-opt each other in a cabal of successful business angels. That would be bad enough: when Jeff Bezos started Amazon, every VC he initially pitched turned him down, and he started the company with money from friends and family, not qualified investors (Kleiner Perkins invested later, when the company was already on a wildly upward trajectory). But what’s most likely is that “qualified investors” means what it already means: anyone with a net worth of over a million dollars or annual income in excess of $200,000. So look forward to most of these visas being snapped up for real estate projects and the like — not the cool tech startups the Startup Visa guys envision.
Writing this post has been difficult for me, a potential immigrant founder, because I dearly want to be wrong. I want there to be something that works like the Startup Visa is intended to work. As someone who likes America and wants her to succeed, I absolutely agree that the US immigration policy is nuts and that much, much more should be done to attract scientists and entrepreneurs.
I will grant that the Startup Visa has been good for one thing: it has focused the tech community’s hunger for immigration reform. This momentum should be preserved, in order to help make the US immigration policy less crazy. Here’s are some ideas on what to focus on:
- Actually increase the number of visas for entrepreneurs! Ideally, the E-2 investor visa (which grants a renewable temporary visa to those who invest over $200,000 in the US) should be merged into aforementioned the EB-5 visa, with the number of visas for the combined category higher than the sum of the two, and with streamlined procedures. Anyone should be able to invest, say, $250,000 and get a green card after, say, two years, if they’ve met a number of targets such as revenues or job creation — not targets that depend on an outsider’s whim.
- Streamline the visa process for foreign graduates of US universities and foreign workers, and increase their numbers. This is particularly true of H-1Bs, which are a particularly evil category right now but could be improved with a few procedural changes.
- Draw inspiration from the Canadian and Australian immigration services, which actually work to recruit the smartest, most dedicated people to their countries with a “points” system.
Of course, it’s easy to see why the tech community has mobilized around the Founder Visa instead of these ideas. A “Founder Visa” is a shibboleth, two words that anyone can relate to and say “Yeah, that sounds cool! I’m going to retweet that guy!” The policies that would actually make a positive difference are boring, procedural things. It’s hard to solidify and mobilize a movement around that. But given how much the tech community prides itself on being intelligent and fact-based, it shouldn’t be so hard for us. Right?