It’s become a familiar pattern for foreign entrepreneurs: Get a startup idea, decide to focus on the relatively wealthy U.S. market, incorporate in the U.S. and even hire employees here. And then eventually try to move permanently to the country where they’ve built a new business.
Since 2016, an estimated 1,865 people outside the U.S. have founded U.S.-based companies that received venture funding, according to a tally from Crunchbase, a company that tracks startups and their funding.
Israel led the way with 12 percent of those founders, followed by the United Kingdom and India at 11 percent each, Crunchbase said. Another 7 percent were from Canada and 4 percent from Germany. Y Combinator, a California-based startup incubator that provides funding and coaching in exchange for a stake in young companies, had 50 percent of its latest class of entrepreneurs from outside the U.S., the highest percentage ever.
The startups highlight just how desirable the U.S. continues to be as a destination for entrepreneurs, even as other markets including China are becoming competitive and startup funding goes global.
The rise of foreigners establishing startups raises persistent questions about the U.S. economy and the immigration system, including whether the federal government should be more accommodating.
The rising popularity of the video service Zoom during the coronavirus pandemic has highlighted one extreme case: its Chinese-born founder Eric Yuan, who was denied a U.S. visa eight times before being approved.
“There was a population of entrepreneurs who were being overlooked,” said Manan Mehta, a founding partner at Unshackled Ventures, a venture capital firm based in the San Francisco Bay Area focused on investing in foreign founders and helping them come to the U.S.
There are enough foreign founders starting companies in the U.S. that an economy has grown up around them to provide services, a trend that has accelerated over the past five years. In 2016, Stripe, a San Francisco company that provides business services, began offering what amounted to a startup-in-a-box: a package of services that included incorporation in Delaware, a U.S. bank account and a payments system.
By now, Stripe says its package, which is calls Atlas, has been used by entrepreneurs in more than 140 countries to incorporate more than 15,000 companies. It costs $500 and requires a form that can be completed in 10 minutes. A competitor, Firstbase, advertises a form that can be completed in 5 minutes.
A tech startup founder based in India, who spoke on the condition of anonymity because he was unsure how media exposure would affect a U.S. visa application, said it seemed “crazy” how easy it was to set up a U.S. business remotely. But he said he saw benefits for Americans, including jobs for people he plans to hire in the U.S. and services for customers here.
“I can do everything remotely: I can set up a company, I can run it remotely from India, I can show up as a tourist, but I can’t move to the U.S. and run it like my U.S. competitors,” he said.
The U.S. has dozens of visa categories for immigrants and non-immigrant visitors, some of which may already apply to startup founders or their investors. A category known as EB-5 visas, for example, may be available to people investing $1.8 million or more of their own money.
Whether to grant temporary legal status to foreign-born small-business founders has become a recurring political debate. The Obama administration in 2016 announced a plan to allow some foreign entrepreneurs to remain in the U.S. for at least two years. The Trump administration tried but failed to eliminate the program, and now beefing it up is among the immigration changes that Silicon Valley is seeking from President Joe Biden.
Under the program, known as “International Entrepreneur Parole,” startup founders could be eligible if their companies have received at least $250,000 from angel investors, venture capitalists or similar investors, and if they’ve met other criteria.
Canada has a formal “startup visa” program, an attempt to attract people who may be blocked from entering the U.S.
But even with former President Donald Trump seeking to ax the idea of startup visas while he was in office, some venture capitalists have been eager to provide startup capital to people outside the U.S. starting U.S.-based companies.
One venture capital firm that focuses on female and foreign founders, Off the Grid Ventures, has made 16 such investments since 2015, according to Crunchbase.
Mehta, a California native, started Unshackled Ventures in 2014 with another investor after they were managing startups alongside foreigners kept running into visa issues. Now, Unshackled receives around 1,800 proposals a year, he said, selecting about 15 of them in which to invest. Their latest investment fund, announced in 2019, raised $20 million.
And it provides startups with not only early capital, but also legal assistance through the immigration process. Mehta said the fund has helped foreign entrepreneurs with more than 150 immigration filings in six years.
“If you’re going to talk about enabling immigrants, you also have to talk about enabling their immigration journey,” he said.