The New Startup Arms Race

The United States is locked in a new arms race for that most precious resource -- the future entrepreneurs upon whom economic growth depends.
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There is no greater country on Earth for entrepreneurship than America. In every category, from the high-tech world of Silicon Valley, where I live, to University R&D labs, to countless Main Street small business owners, Americans are taking risks, embracing new ideas and -- most importantly -- creating jobs.

America's future prosperity depends on our ability to maintain this lead. But today, it is getting harder and harder to maintain. A quick glance is the rear-view mirror reveals that other countries are catching up and at an alarming rate. Part of this is due to their determination to overtake us, but part is due to structural changes in the nature of entrepreneurship.

Startups are the lifeblood of our economy. In the past two decades, they have accounted for nearly all the net job growth in our country. Many of these companies are started by entrepreneurs, and are now household names: Google, Yahoo, eBay and Intel. But many more are true American success stories, out of the limelight, quietly creating jobs and securing our future.

Take the example of Indiana's Passageways. Paroon Chadha came to the US for his graduate education, and was bitten by the entrepreneurial bug immediately after school. He started Passageways Inc. immediately upon graduating, and has spent the last 8 years struggling to work around visa restrictions. Luckily for the rest of us, he was able to find his path to a green card, and now employs 24 Americans in West Lafayette, Indiana. For every success story like Paroon's, there are dozens -- hundreds -- of similar cases that end in failure.

Like other industries -- from publishing to automobiles -- entrepreneurship is in the process of being disrupted by globalization. The cost of creating new companies is falling rapidly, and access to markets, distribution, and information is within the reach of anyone with an Internet connection. The result is a profound democratization of the digital means of production.

When Steve Jobs and Steve Wozniak created Apple computer in a garage in Palo Alto, it heralded the beginning of the PC revolution that ultimately dealt a death-blow to dozens of older companies. That could only have happened in Silicon Valley or one of a few specialized technology hubs that had the manufacturing, engineering, and software specialists required to build their first products.

But when Mark Zuckerberg started Facebook in his dorm room in Boston, he unleashed a revolution, too. But something had changed -- it's our good fortune as Americans that Facebook began in an American dorm, but there is nothing necessary about it. It could have happened elsewhere. And it's our good fortune that Mark was already an American citizen, and so could move to Silicon Valley without difficulty, where he now leads a company that employs hundreds -- and soon, thousands.

If the next Facebook, Google, or Amazon begins in another country, the economic growth that it sparks will benefit us, too. But the jobs will be created over there.

The United States is locked in a new arms race for that most precious resource -- the future entrepreneurs upon whom economic growth depends. Substantial research shows that immigrants play a key role in American job creation. For example, over 25% of the technology companies founded between 1995-2005 had a key immigrant founder. These companies produced over $52 billion dollars in sales in 2005, and employed 450,000 workers that year. Similarly, 24% of all the patents filed in the US in 2006 had a foreign resident as inventor or co-inventor.

If we allow other countries to welcome these immigrants, support them and nurture them, we will lose out in this race. We will not lose on their products -- after all, most of them are global. We will not necessarily harm investors, either: as capital is increasingly global, they will be able to invest wherever good ideas are born. The cost will be felt in jobs -- thousands of new jobs that could have been created here, but weren't.

There is much that public policy can do to support American entrepreneurs. Health insurance reform will make it easier for entrepreneurs to take a chance on a new business without putting their family's health at risk. Tort reform will make it easier to take prudent risks on new products in a number of sectors. And the clean energy revolution requires extensive policy support.

These policies are important, but they do not address this fundamental concern: America is losing the global arms race for entrepreneurial talent. There is a solution, called the Startup Visa. There is a special visa for international investors that want to bring capital to this country to start a business with. It's called the EB-5 visa, and we already set aside 10,000 every year for this purpose. Yet this policy does nothing to bolster our position in the arms race -- the visa attaches to the investor, not the entrepreneur.

With a small change to the EB-5 definition, we can reverse that priority, making the visa available to qualified entrepreneurs seeking to raise capital from American investors to create jobs, economic growth, and assure our future prosperity.

The Startup Visa Act of 2010 is currently pending in the Senate, co-sponsored by Senator John Kerry and Senator Richard Lugar. Similar legislation, originally sponsored by Congressman Jared Polis, is being considered in the House. This bipartisan and bicameral progress is the result of the thousands of people who have spoken out in support of this idea since the launch of last year: entrepreneurs and investors, professors and students -- citizens from almost every state in the union (see a map here). This grassroots support is essential as the Startup Visa bill has a chance to become law this year.

Every potential founder that has to leave this country in order to create their startup is a lost opportunity. These lost opportunities are not consonant with American values, they are not smart public policy, and -- most of all -- they represent thousands of lost jobs.

To learn more about the Startup Visa, its specific provisions, and to lend your support, please see

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