Super Tuesday! Super Saturday! Not-so-important Sunday! (Puerto Rico’s primaries are held on Sundays). The U.S. Presidential election is in full swing and the outcome will impact entrepreneurs and investors across the globe.
One of the most contentious election issues that heavily affects the tech community is immigration reform.
The primary immigrations issue for technology companies concern; 1. Raising the quota of temporary visas issued to highly skilled workers (H-1B visas), and; 2. The creation of a clear path to immigration for entrepreneurs. The importance of these issues to the tech sector were highlighted in 2013 when corporate adversaries Bill Gates, Mark Zuckerberg, and Marissa Mayer joined forces with numerous other technology leaders to found FWD.us, a lobby group dedicated to comprehensive immigration reform.
A Path to Citizenship for Foreign Entrepreneurs
Immigrant visa options (green cards) for entrepreneurs who wish to, or have already started a company in the United States are essentially non-existent. Most people do not realize that it is possible to get a green card if one invests $500,000 into an existing American venture. Strangely, starting a business worth $10 million does not meet the same criteria. There are some paths to residency currently used that were not originally intended for permanent immigration purposes, and require the government to waive certain requirements for residency (see information on the EB-1 Visa) for details). As a result, there are many examples of individuals starting a successful company in the US on temporary visas within two years of finishing their degree at an American university. However, because they did not have proper status, these individuals often have their temporary visa not renewed and their immigration application claim enters a limbo or gets rejected. This leaves them in a form of limbo where they have to find a way to run their U.S. based company from overseas, regardless of how many American jobs they have created.
To put the impact in proper perspective, between 2005 and 2012, 44% of all businesses started in the Silicon Valley had at least one foreign founder.
“U.S. immigration policy does not look kindly on foreign nationals who seek to create businesses in America. In fact, in a practical sense, it may be easier to stay in the United States illegally and start a business than to start a business and gain legal temporary status and permanent residence (green card) as the owner of that business.” -Stuart Anderson, America’s Tradition of Rewarding Talent: The Case for an Immigrant Entrepreneur Visa
The idea of an immigrant entrepreneur visa is generally considered to have bipartisan support due to it’s job creation potential. A common idea for how to implement it is described by Felix Salmon from Reuters as follows:
“The immigrant-entrepreneur visa is pretty simple. You create a pool of 75,000 such things, available to anybody who’s here already on an H-1B or F-1 visa. When those people switch from their old visa to their new one, they have to start a new company; employ at least two full-time, non-family member employees ‘at a rate comparable to the median income of employees in the region’, and invest or raise at least $100,000. After that, they have to continue adding employees at a rate of one per year, so that after three years, there must be at least five employees. At the end of three years, you graduate to a green card, and with it the standard path to citizenship.”
The proposal appears reasonable, and has already been written into multiple bills. The first bill, the Startup Act, was originally introduced in 2013, co-sponsored by four Democrats and three Republicans including Marco Rubio. Later that year it was made part of the larger “Gang of Eight” Immigration Reform Bill. This second bill included a number of proposals that enjoyed less bipartisan support, most notably a pathway to citizenship for some illegal immigrants. Today that bill is essentially dead, having been blocked in the House of Representatives. Finally, the bill, now known as the Individual Startup Act was reintroduced in 2015, but notably without Marco Rubio’s support. He has been accused of distancing himself from the immigration issue as part of his presidential bid.
A key problem with immigration reform is that changes to policy are always controversial to some stakeholders, and regardless of general bipartisan support, the controversial aspects to the changes always seem to derail the efforts. The ongoing H-1B visa situation is an example of this, and resolving the issues surrounding it should be of particular interest to all tech entrepreneurs, and their investors.
H-1B visas
The current H-1B visa system offers companies a convoluted framework for hiring foreign workers. Let’s explain how; An entrepreneur running a small U.S. startup can hire a foreign student from a U.S. university for a work term during their degree. The entrepreneur may wish to hire the student after their degree for an optional practical training period tacked onto their F-1 visa; this period can last up to 2 years. After those 2 years, the student loses their visa, and the residency status. But during this time they have become an integral part of the team, and replacing them is difficult and problematic, and will affect productivity.
An H-1B visa is essentially the only way to retain them once their F-1 extension expires. However, the number of H-1B visas available is limited, and the process to acquire one is expensive, time consuming, and inflexible. The system makes it incredibly difficult for startups to manage acquiring them on behalf of their staff. H-1B visas are issued just once a year starting on April 1st, and in 2015, all 85,000 were handed out by April 7th.
One simple solution that has been included in many failed bills over the years has been raising the cap from the current 85,000, where it has been since the late 1990’s.
Detractors who argue against raising this cap believe the H-1B visa is prone to abuse by companies looking to replace local IT workers with cheaper counterparts from overseas without outsourcing. While there is undeniably some truth to this argument, in reality the sheer amount of time, effort, and planning that is currently required to get an H-1B visa heavily favours larger companies who can attempt to bring in workers in larger numbers in situations where they would see significant cost savings. For these detractors, the foreign worker incident that arose at Disney in June 2015 is used as an example of how the current program is problematic.
So why do we care about U.S. policy? Because these policies affect Canadian companies that want to open operations in the U.S.
Presidential Candidate Positions on H-1B Visas
Each presidential candidate has a different position regarding this type of visa.
On the Republican side, Ted Cruz is the staunchest opponent of expanding the H-1B program. His proposed American Jobs First Act would essentially eliminate the use of the H-1B program for any employee whose salary is less than $110,000.
Donald Trump has also made an anti-immigration stance part of his campaign, although he is rumored to secretly be flexible on the issue. The official stance from his website says the following:
“The H-1B program is neither high-skilled nor immigration: these are temporary foreign workers, imported from abroad, for the explicit purpose of substituting for American workers at lower pay. I remain totally committed to eliminating rampant, widespread H-1B abuse…”
Ironically, Trump’s own modeling agency may have taken advantage of this controversial visa to bring foreign models to work in the country.
Marco Rubio represents the sole Republican candidate in favor of expanding the use of H-1B visas. His website states that if elected he would expand the Bachelor degree portion of the H-1B visa program from 85,000 to 130,000. He acknowledges there is some program abuse, and his approach to solving it is as follows:
“If a company gets caught [abusing the program], they should never be able to use the program again. But we also need to add reforms, not just increase the numbers. For example, before you hire anyone from abroad, you should have to advertise that job for 180 days. You also have to prove that you’re not undercutting that you would pay [an American] by bringing in cheap labour.”
The Democrats are clear on the issue. Hillary Clinton originally supported a bill that increased the H-1B cap to 115,000, but later backed away from her position, claiming the proposal did not adequately require employers to prove they have searched for Americans to fill the job. At present, her policy platform no longer directly addresses the H-1B visa situation.
Bernie Sanders has generally been critical of the H-1B visa system. Based on a July 2015 interview, he believes the system should not be expanded until its fixed. When questioned, he preferred to focus his comments on changing the current system to provide better wages for immigrant workers and protecting them from becoming indentured to their employers. In April 2015, Sanders cosigned a letter calling for an investigation into abuses in the H-1B system, and criticized a portion of the Gang of Eight bill that would have expanded the H-1B cap to 200,000.
As we might expect with an issue like immigration, different candidates focus on different aspects of the issue. If we consider who has done the most to work on these issues, Republican Marco Rubio is clearly the strongest. Republican Ted Cruz, as intractable as he is on immigration, has at least proposed a solution, albeit one that would dramatically reduce the use of the H-1B visa with nothing to replace it. Finally, Donald Trump has criticized the H-1B visa but proposed nothing to replace it. Among Democrats, Clinton has provided some support for various immigration reform bills. Finally, Sanders has provided some critiques on the issue, but offered limited solutions.
The System in Canada
No immigration system is perfect, but Canada’s visa system has already dealt with many of the challenges the U.S. is currently going through. Three notable components of Canada’s system are:
- Canada launched its own Start-Up Visa program for entrepreneurs in 2013. Although it took a while to gain traction, by May 2015 there were 16 approved applications and another 60 in the pipeline.
- In 2015, Canada revamped its H-1B analogues by eliminating its own cap system, opting instead for a scoring system to determine eligibility. In addition, the system for accessing Canada’s visa programs has been streamlined into the Express Entry program.
- Canada’s post-graduate work visa program is up to 3 years (one year longer than the US OPT) and provides a clear path to immigration. This allows Canada to retain the strongest foreign students educated in the country and Canadian companies do not regularly lose great employees because their visas expire.
Regardless of how this US election turns out, we can be sure immigration reform will continue to be a contentious issue. In the meantime, Canadian entrepreneurs and tech companies can be grateful that our immigration system, is more functional and progressive.
Venture Capitalists investing in Canada should factor the stability that the certainty and flexibility Canadian immigration policies offer. Considering that 44% of all start-ups in Silicon Valley have at least one foreign founder, this issue should be of concern during any due diligence process. In Canada, investors rest easier knowing the founder and key team members in the companies they invest in will not face the challenge of being forced to leave the country despite their success.