The Immigrant Exodus

Why America Is Losing The Global Race To Capture Entrepreneurial Talent

by Vivek Wadhwa

The Immigrant Exodus

Paperback, 106 pages, Wharton Digital Press, List Price: $15.99 | purchase

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The Immigrant Exodus
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Why America Is Losing The Global Race To Capture Entrepreneurial Talent
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Vivek Wadhwa

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NPR Summary

Vivek Wadhwa draws on his new research to show that the United States is in the midst of an unprecedented halt in high-growth, immigrant-founded startups. He argues that U.S. immigration policies and increased competition from countries like China and India are leaving some of the most educated and talented entrepreneurial immigrants with no choice but to take their innovation elsewhere.

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Excerpt: The Immigrant Exodus

The Immigrant Exodus

As an undergraduate studying at Government Polytechnic, Mumbai, Anand Chhatpar launched his first software company, Pyxoft Infotech. After graduating at the top of his class with a degree in computer engineering, Chhatpar entered the University of Wisconsin—Madison in 2001. At his new school, he immersed himself in the culture of startups, entering business plan competitions and collaborating with fellow students and professors to brainstorm business ideas. He interned with Pitney Bowes and other organizations, garnering eight utility patents from the US Patent and Trademark Office.

During his junior year, Chhatpar founded BrainReactions with two other students. The company provided a platform to harness undergraduate insights to help large corporations solve problems and innovate. The business served dozens of notable clients such as Bank of America, Black & Decker, BMW, General Mills, Intuit, Kellogg's, Procter & Gamble, and the United Nations. Chhatpar ran the business while pulling a 3.978 GPA in computer engineering.

Anand met Shikha at the University of Wisconsin—Madison and married her in November 2008. Just after she graduated, the Chhatpars launched another business, Fame Express, in order to build Facebook game applications. The company's apps were played online by 20 million people around the world and garnered 900,000 fans. In the first two years alone, Fame Express grossed about $1 million, and the Chhatpars paid more than $250,000 in taxes. Anand carved out a media profile, appearing in numerous media outlets including CNBC, US News & World Report, and the Los Angeles Times. In September 2010, the Chhatpars returned to India for a legally mandated period, while awaiting paperwork from the US Citizenship and Immigration Service (USCIS) that would clear a path to citizenship.

The Economic Impact

The US economy has benefited tremendously from people like the Chhatpars, who have come to this county, started businesses, and created new jobs. Few dispute that since the inception of this nation, immigration has driven significant economic growth. Many of the United States' greatest entrepreneurs and business leaders were first- or second-generation immigrants. This has been true since the founding of the United States as a nation composed of people seeking better economic chances and religious freedom in the New World, a process that started with the arrival of the Mayflower.

Each decade has yielded top-flight entrepreneurs not born in this land, from Andrew Carnegie (Carnegie Steel Company) to Alexander Graham Bell (AT&T) to Charles Pfizer (Pfizer) to Vinod Khosla (Sun Microsystems) to Sergey Brin (Google) to Elon Musk (PayPal, SpaceX, Tesla Motors). A 2011 study by the Partnership for a New American Economy tabulated that first-generation immigrants or their children had founder roles in more than 40% of the Fortune 500. These companies had combined revenues of greater than $4.2 trillion and employed more than 10 million workers worldwide.

More and more evidence indicates that immigrant founders drive a wildly disproportionate percentage of all net new job creation in America. An analysis of 2010 US Census data (the American Community Survey) by the Fiscal Policy Institute found that immigrants constituted 12% of small business owners in this country in 1990 and 18% in 2010, a 50% increase. Small businesses drive new job creation. Immigrants start companies, and every startup begins its life as a small business. According to the Bureau of Labor Statistics, new businesses account for 65% of all net new jobs in America. The US Bureau of the Census puts that number even higher, at 90% of all net new jobs. According to "Open for Business," a 2012 report by the Partnership for a New American Economy, immigrants are more than twice as likely as native-born Americans to start a business. Immigrants, the report further found, "were responsible for more than one in every four (28%) US businesses founded in 2011, significantly outpacing their share of the population (12.9%). Thus, net new job creation — the most important economic driver of the US economy — has become inextricably linked to and dependent upon immigration and the skills of immigrants.

Immigrants occupy founding or key managerial roles in the highest-impact startups at a rate far disproportionate to their share of the US population. A 2011 National Foundation for American Policy (NFAP) study of founding and management teams at the Top 50 venture-backed companies in the United States, as ranked by VentureSource, found that immigrants started nearly half of America's 50 top venture-funded companies and are key members of management or product development teams in more than 75% of those companies. One of those companies, social enterprise communication tools company Yammer, was purchased by Microsoft for $1.2 billion in June 2012.

The crucial role of immigrant founders in the enormous success of US technology concerns continues all the way to the pinnacle of job growth and value creation: the initial public offering. According to the aforementioned NFAP study, 25% of the publicly traded companies created between 1990 and 2005 that had received venture backing also had immigrant founders.

The Shifting Tide

Two months after the Chhatpars returned to India for the legally mandated period, their petition for EB-1 status was denied, despite the fact that they already had employees in the United States, were paying considerable taxes in the United States, had a clear track record of starting companies, and BusinessWeek.com had once featured Anand as one of the "Best Entrepreneurs Under 25."

Obviously, this type of purgatory is bad for business. Says Anand, "Now, after returning to India because of the denial of both our petitions, running our companies (both registered in the United States) has become extremely difficult. As a result, our companies are suffering. Our tax returns can prove that we weren't able to make profits since moving to India and haven't contributed a single dollar to the IRS since then." (Full disclosure — I brought his situation to the attention of Alejandro Mayorkas in May 2012, and he said he would "forward this communication to the appropriate individuals in our agency for consideration as to how best to proceed.")

Today, the Chhatpars are living in Bangalore running both Fame Express and BrainReactions. They have hired four computer programmers to develop India-focused websites. They would rather be working on products for the US market, but given their immigration uncertainties, they feel they have no other choice. And, in all likelihood, some of those jobs would have gone to US-based programmers had the United States not ousted the Chhatpars.

From The Immigrant Exodus: Why America Is Losing The Global Race To Capture Entrepreneurial Talent by Vivek Wadhwa. Copyright 2012 by Vivek Wadhwa. Excerpted by permission of Wharton Digital Press.

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