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U.S. Is Losing the Global Startup Race

This story originally appeared on CNBC

With an immigration showdown looming between House Republicans and President Barack Obama, start-ups and entrepreneurs aren't exactly elated by recent executive actions.


The immigration plan will help undocumented parents of U.S. citizens and legal permanent residents, and young immigrants who were brought to the country illegally as children. But the actions don't address start-ups' key frustration with immigration: Limited work visas for highly skilled people.

While the immigration actions include more support for highly skilled foreign students and entrepreneurs, Obama did not expand the number of available start-up or H1-B visas—a blow to the tech sector in particular.

"The U.S. economy has changed dramatically from 2008 to the present, and there has been no immigration reform to accommodate new start-ups and businesses," says Zach Haller, founder and chief executive of Seattle-based Found in Town. The company is a web-based lost-and-found service, and has a tough time attracting qualified information technology candidates. The field includes software engineers, programmers and data scientists.

Haller said college-age applicants, who meet the criteria, often are foreign-born. They eventually leave to work in other countries after their student work visas expire, and they're unable to secure additional work papers.

"Kids who have those skills, we need them in this economy," Haller said.

In other hot technology regions across the country including Silicon Valley, there's a talent war for highly skilled workers. But limited work visas is a big roadblock for start-ups. U.S. businesses can't compete swiftly for highly skilled candidates—especially when American recruiters can't efficiently offer work visas.

Start-ups have been struggling with immigration reform for years. In 2012, the White House and Congress failed to pass legislation that would have removed random lottery slots for science degree holders. The bill, known as the STEM Jobs Act, would have helped keep foreign-born graduates in America. The STEM fields are science, technology, engineering and mathematics.

The U.S., meanwhile, is graduating fewer STEM students. And the bad news doesn't end there.

Data already shows the growth of immigrant-founded U.S. companies is declining for the first time in decades. The fear is that more skilled workers will bypass America for foreign shores to bootstrap start-ups, innovate and ultimately create jobs elsewhere. Where will the next Alibaba—an e-commerce giant founded in China—come from?

"You're going to see more billion-dollar companies coming out of Beijing, Bombay, Rio de Janeiro, Sao Paulo," said Vivek Wadhwa, a Stanford University fellow. He'a also led entrepreneurship research for the Kauffman Foundation.

In last week's evening address from the White House, Obama detailed efforts to shield millions of illegal immigrants from deportation. The plans includes administrative relief and work permits to an estimated 3.7 million undocumented parents of U.S. citizens and legal permanent residents, as well as an additional 300,000 young immigrants who were brought to the country illegally as children.

Has immigrant-led start-up growth plateaued?

There's no denying immigrants' contributions to new U.S. businesses and job creation.

Immigrants were nearly twice as likely to start businesses in 2012 as native-born Americans, according to research from Kauffman, which focuses on entrepreneurship. While immigrant-led entrepreneur activity peaked in 2010 during the economic slowdown and has since fallen to 0.43 percent, activity among native-born entrepreneurs essentially has been flat at 0.3 percent or below during the past decade.

About a quarter of the engineering and technology companies started in the U.S. between 2006 and 2012 had at least one key founder who was an immigrant. In real dollars and number of jobs, immigrant-founded engineering and technology firms in the U.S. employed roughly 560,000 workers and generated $63 billion in sales in 2012.

The concern now is that unprecedented expansion of immigrant-led entrepreneurship as seen in the 1980s and 1990s in the U.S. has plateaued to a current national growth rate of about 24.3 percent, according to Kauffman data.

In Silicon Valley, the proportion of immigrant-founded companies was 43.9 percent for the same period—down from 52.4 percent from 1995 to 2005.

"That the proportion of immigrant founders in the Silicon Valley has declined since 2005 should raise questions about the United States' future ability to remain economically competitive in the international market," according to a Kauffman report.

America's bench of science degree holders, meanwhile, is slim—with the numbers for women especially abysmal. Women account for less than 18 percent of total bachelor's degrees in computer sciences and engineering; under 28 percent of master's degrees in those two fields; and less under 22 percent of related doctorate degrees, according to national education statistics.

Start-up activity, meanwhile, is only accelerating outside the U.S. "You're going to see more billion-dollar companies coming out of nowhere overseas," said Wadhwa of Stanford. "Innovation is globalized. The cat's out of the bag."

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