Founders Visa Introduced in Senate

These kids probably can't raise $1.25 million in startup capital

These kids probably can't raise $1.25 million in startup capital

The last time I wrote about the Founders’ Visa concept, I wondered how the law would be drafted to prevent the creation of “sham” startups. Senators Kerry and Lugar have now introduced legislation modeled on Graham’s proposal, and it provides a concrete answer. To qualify for a visa, the startup must raise $250,000 in capital, including $100,000 from an American citizen. And the startup must promise to create 5 jobs, raise another $1 million, or generate $1 million in revenue within the first two years. If the founders fall short of these targets, they get deported.

The first thing to note about this, as Mike Masnick points out, these are really high figures for software startups. Paul Graham, the guy who proposed the founders visa concept in the first place, funds startups with around $20,000 in startup capital. And he has written at length about ramen profitability, the point at which the startup is earning enough money that the founders can pay their basic living expenses. The ramen profitability point is far below $1 million per year. Most startups fail, and a lot of the ones that succeed do so by changing their business strategies several times before they hit paydirt. Getting to ramen profitability within 2 years is fairly difficult. Getting to a million dollars within 2 years is extremely hard.

No genuine angel investor is going to invest $250,000 in a company whose founders could be deported at the end of two years. So the practical effect will be to simply ratchet up the capitalization requirements even higher. Angels will only provide the initial round of funding if they’re prepared to chip in another million bucks at the end of the 2 years. And this, of course, is even more ludicrously out of step with software startups. There are lots and lots of successful software startups who have gotten through their first two years with a lot less capital than $1.25 million.

I don’t know as much about startups in other industries. Maybe there are some where $250,000 is a low threshold. But in any event, this kind of micro-managing is going to significantly limit the usefulness of the visa.

The more fundamental problem with the legislation, I think, is the extent to which it panders to the economic ignorance and xenophobia of American voters. The implicit premise of the proposal seems to be that there are hordes of scary foreigners who want to invade our country and steal our jobs, and it’s vital that we keep them out. However, there are a small number of foreigners who will be so fantastically productive that it’s in our self-interest to hold our collective noses and let them into the country. However, we have to set tight limits so that the bad kind of foreigner (which is almost all of them) don’t use it as a loophole to sneak in and steal our jobs.

I find this kind of bigotry so distasteful that I’m reluctant to indulge it even for a good cause. I’m troubled by the restrictionist elements of my colleague Dan Griswold’s proposal for a guest worker program (which in watered-down form became a key part of the 2007 immigration bill), but I’d vote for it because it would give hundreds of thousands of poor people the opportunity to dramatically improve their standard of living. In the case of the startup visa, we’re talking about a proposal that would help a much smaller group of far more privileged people while pandering much more aggressively to xenophobes.

More to the point, I’m not convinced this strategy will work. The 2007 immigration bill failed because it turns out that xenophobia isn’t a well-organized interest group with which you can negotiate. Proposing ever-narrower visas with ever-more-draconian provisions to “protect American jobs” simply legitimates the Lou Dobbs view of the world while it dissipates whatever political capital advocates of immigration reform have.

This is why I much prefer a bill like the DREAM Act. It, too, is focused on a fairly narrow problem, but it’s narrow in a way that strengthens, rather than undermining, the argument for broader immigration reform. The fundamental argument for the DREAM Act is that immigrants are human beings who have the same rights and deserve the same opportunities as native-born Americans. It powerfully advances this argument by focusing on sympathetic victims of the current immigration regime. The implicit argument for the startup visa is just the opposite: that immigrants are second-class human beings who should only be allowed to pursue the American Dream only if they produce large benefits for native-born Americans in the process. I find that premise both economically confused and morally offensive.

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3 Responses to Founders Visa Introduced in Senate

  1. Don Marti says:

    Couldn’t a business owner in the USA just use this to bring in random people?

    Owner of XYZ Mart sends his friend papers to sign — congratulations, the friend is now founder of “XYZ Properties”

    Owner borrows against his building to invest in XYZ Properties.

    Founder gets a visa, comes to USA, and XYZ Properties buys the building. (Now the original business is no longer owner of a building, but majority owner of the company that owns the building)

    Five of the XYZ Mart employees start getting their paychecks from XYZ Properties.

    No new business activity unless you count the transaction costs.

    (Sometimes I think transaction costs are the most powerful special interest in the USA.)

  2. Don: Yeah, that could happen. I imagine that there’d be some concept of a “bona fide” startup, and endless lawyering over how to define that. This doesn’t especially bother me since I’m happy to have more people finding loopholes in immigration law, but it certainly could create PR problems.

  3. Dave mcclure says:

    your arguments above ignore the first and most basic test of viability for the Startup Visa Act…

    that is: find a way to create 5 jobs in 2 years with at least $250k in capital that’s been raised.

    that’s a much more achievable milestone than the other 2 (still attainable) alternative rqmts which you’ve spent so mug time complaining about.

    that’s it: create 5 jobs in 2 years, and you can stay in the US.

    furthermore, it’s a much more pragmatic and politically feasible basis for making change happen.

    your choice: keep tilting at windmills & complaining, and nothing will ever get done.

    or, try taking the first basic steps towards a practical & realistic goal, and then use that as a springboard for further progress.

    up to you.

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