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How U.S. immigration laws push American startups out of America
Is the immigration system the Achilles Heel of Silicon Valley?
All it took was a few days in New York City for Pierre-Jean Cobut to fall in love with America. For a kid growing up in a sleepy, rural town in Belgium, the Big Apple’s frenetic bustle was intoxicating. He loved it. All he wanted was to go back, this time for more than just a family vacation.
A few years later, Cobut got his wish. He signed up for a student-exchange program and spent a year at Marietta High School in southeastern Ohio. He stuck around in the riverside Appalachian town after graduation to attend Marietta College as a pre-med student before shifting his focus from medicine to business and finishing his undergraduate studies in Belgium, where he went on to earn his masters degree. (Full disclosure: Cobut attended high school with the Daily Dot’s politics editor, Andrew Couts.)
“The fact that we have created jobs doesn’t really come into account.”
Cobut spent a few years working at Procter & Gamble in Geneva, Switzerland, but was unfulfilled. He was just one little cog in a giant machine looking out across the Atlantic at a glittering world of opportunity. Cobut left the company and enrolled at the Stanford Graduate School of Business in 2012. During his first year there, he hooked up with an Israeli classmate named Elad Ferber, and, following in the footsteps of so many other ambitious Stanford graduate students, like Larry Page and Sergey Brin, went all in on a tech startup.
Cobut’s company, Echo Labs, is built off of the idea that figuring out what what’s going on with your health is still largely a mystery without getting help from an expert, Cobut says. You can feel good one day but lousy the next, and your only options are to go see a doctor or brave the wilds of self-diagnosis sites, like WebMD, where a search for the cause of your stomach ache inevitably leads to a prolonged freakout that you definitely have cancer.
Echo Labs’ product is a wearable device, just a bit bigger than a quarter, that uses pulses of light to determine the concentration of different molecules in your bloodstream. That data gets sent back to Echo Labs’ systems and comes back to the user in the form of a report on her physiological health.
“For us,” Cobut tells me over the phone, “the dream is to become a big healthcare company that really enables people to understand their bodies better, to act on those little things that you should be able to know that really improve your life.”
Medical-tech is hot business, and the idea attracted attention. Cobut and Ferber raised $1.5 million from a venture capital firm and set up shop in an office in Palo Alto, close to both Stanford’s campus and the hive of venture capital firms that populate nearby Sand Hill Road. Echo Labs has four employees, including Cobut and Ferber, and they plan to at least double that by the end of the year. If everything goes according to plan, Echo Labs will begin taking orders this summer and ship out the first units early next year.
The “if” in this case carries enormous weight. For all tech founders, there are a standard set of land mines in the way of becoming the next Facebook (or even the next Theranos). What if the tech bubble pops and funding dries up? What if Congress cracks down on medical tech, suddenly making my product illegal? What if the company gets hit with a lawsuit from a slimy patent troll?
For both Cobut and his cofounder, the main question gnawing at their minds is another beast entirely: What if I get deported?
Neither Cobut nor Ferber are U.S. citizens. They are currently in the United States on something called Optional Practical Training visas. These visas are granted to foreign students who graduate with post-secondary degrees from U.S. institutions and last between one and three years, depending on the area of study.
Cobut’s visa runs out on June 30. If he doesn’t figure something out before then, he’s out of luck.
“There are huge amounts of talent … [in Silicon Valley], and there’s a ton of capital,” Cobut says. “There’s a great culture of people who just want to build and innovate. We’ve known for a really long time that we wanted to be here.”
He’s not alone. But America’s immigration system simply isn’t set up to accommodate the needs of foreign-born entrepreneurs who want to headquarter their businesses in the United States.
Cobut has, in many ways, become the face of a movement to fix the way the country’s immigration system handles budding entrepreneurs. Through a friend, Cobut was introduced to the immigration reform group Partnership for a New American Economy. Founded by former New York City mayor Michael Bloomberg and international media tycoon Rupert Murdoch, and cochaired by big city mayors and corporate CEOs, like former Microsoft CEO Steve Ballmer, the group pushes for consensus solutions on immigration reform through an economic lens. There was a lot about P.J.’s dilemma that spoke to them.
“People on the left talk about reuniting families, and people on the right talking amnesty and illegal immigrants and border security. They’re all important conversations, but people are talking right past each other,” explains Executive Director Jeremy Robbins. “If you start talking about the economy, you can actually bring both sides together. If you say to say to someone, ‘Should there be a visa for someone to come to America, start a company and hire American workers?’ Of course there should be. People on both sides get it. That’s a very different conversation than the law and order/you’re ripping my family apart conversation that’s been happening.”
Partnership for a New American Economy made Cobut the focal point of a slick publicity campaign called #LetPJStay, which aims to highlight the often difficult immigration situations faced by foreign-born entrepreneurs. The group joins the efforts of FWD.us, a similar group founded by Facebook CEO Mark Zuckerberg and other Silicon Valley titans, which last year raised more than $50 million to lobby Congress on immigration reform for highly technical foreign workers—funds that have so far had little effect.
For Robbins, encouraging new companies founded by recent immigrants, both within and outside of the tech sector, is a no brainer. “If you think about economic growth and where job creation has come from over the last 30 years, virtually all the job growth has come from not just small businesses but new businesses—businesses that are under 5 years old,” he explains. “If you want to grow out of the recession, the best thing we can do as a country is spur job growth.”
Between 1996 and 2011, entrepreneurship rates in the U.S. have dropped by about 10 percent among native-born Americans, while they’ve increased for first-generation immigrants by about 50 percent. While immigrants only made up 13 percent of the population in 2011, according to a Partnership for a New American Economy study, they were responsible for the creation of 28 percent of all new businesses.
The obvious solution is to make it easier for immigrant entrepreneurs to not only come to the U.S. but also stay here long-term. While there are a couple ways Cobut could remain in the country he now calls home, neither of them are ideal. Even so, they’re all he’s got.
Cobut applied for something called an H1-B visa. Created in 1990, H1-B visas are meant to allow American companies to fill specific high-skilled positions that would otherwise remain open. The popular conception of H1-B visas is that they go to computer programmers and engineers working at tech companies. It’s a workable solution for someone like Cobut, but it comes with a significant set of risks and drawbacks.
For one, there’s no guarantee he’ll actually get the visa. There are far more applicants for H1-B visas than there are available slots in the program. By law, the U.S. issues 65,000 H1-B visas each year, with another 20,000 available for people, like Cobut, who have received advanced degrees from American universities.
“There are Americans who can do that work, and H1-B workers are cheaper and undercut wages.”
The 2015 application period opened on April 1. The U.S. Citizenship and Immigration Service, which did not respond to a request for comment on this article, reached the cap on the total number of applications it would accept and closed the window five days later. Cobut, his cofounder, and a litany of others are now entered into a random lottery with far more hopeful applicants than there are open slots.
A 2013 analysis by Computer World found that the primary beneficiaries of H1-B visas are firms like Cognizant, Tata, and Infosys, which use the visas to replace domestic workers with marginally cheaper foreign ones. Unlike someone like Cobut, who intends to stay in the country, under three percent of employees who received the visas applied to become U.S. citizens.
It’s for this very reason that the H1-B program itself has been become controversial and led some high-profile figures to call for scrapping it entirely. “We need to get rid of H1-B workers,” civil rights leader Rev. Jesse Jackson told Forbes in an interview late last year. “There are Americans who can do that work, and H1-B workers are cheaper and undercut wages.”
Jackson argued that tech companies are notorious for being demographic monocultures—white, Asian, and male. Bringing in foreign workers that still largely fit that description doesn’t really help all that much in terms of diversity.
Here’s another problem: H1-B visas aren’t meant for founders; they’re meant for employees. As a result, Cobut and Ferber were forced to change Echo Labs’ ownership structure, essentially divesting from their own enterprise while essentially doing the same jobs they have been doing. “If we were both American, we’d both had 50-50 shares in the company,” Cobut explained. “In our case, we have to be employees, so we don’t have total control. We have to be in a position where the board can fire us. We have a board of directors, and both of us can be fired by the board.”
Having to make serious business decisions to conform with the unintended quirks of immigration law isn’t the only potentially detrimental effect of having to fit a founder into the awkward H1-B box. It’s common practice for the founders of companies to take very small salaries in the early days or not to take one at all. Jack Conte, the founder of the online crowdfunding platform Patreon recently told the Daily Dot that, despite having raised $17 million in venture capital, he still doesn’t take a salary. For a young company eager to keep costs down, this makes sense: A founder makes only a trickle of money at the beginning in exchange for the promise of a larger payout down the line.
To ensure that recipients of H1-B visas aren’t undercutting American workers, employers are required to pay them prevailing wages. A founder going out for an H1-B visa who wants to stay at their company is required to pay themselves the going rate for a tech startup CEO. Sure, being required to be paid more money is far from the worst problem in the world to have, but it may not be in the company’s best interest over the long term.
Despite all of this, Cobut submitted his H1-B application, but others haven’t been so lucky.
Sam Chaudhary, another Partnership for a New American Economy poster entrepreneur, is the cofounder of a company called Class Dojo, which helps teachers manage their students’ classroom behavior. Chaudhary’s company raised a bundle of cash from investors and counted over 2 million students as users. But Chaudhary, a British national, missed the increasingly brief application window for H1-B visas. Here was Chaudhary, the cofounder of one of the most exciting education-tech companies on the planet, scrambling to stay in the same country as the firm he founded.
Chaudhary eventually found another way to stay in the United States, utilizing something called an O-1 visa—an avenue that Cobut is also pursuing.
The O-1 visa is for highly skilled individuals, people who are at the top of their field. When CNN tapped Piers Morgan, a Brit, to replace Larry King, the company brought him over on an O-1 visa. There’s no cap on this type of visa (they’re awarded on a case-by-case basis), but obtaining one requires clearing an significant larger hurdle than an H1-B.
In order to get an O-1 visa—which, like the H1-B, doesn’t allow for permanent residency—applicants need to make the case why they’re particularly exceptional. There’s a list of eight different qualifications that someone applying has to answer that include “Have you made original scientific, scholarly, or business-related contributions of major significance?” and “Are you a member of any associations which require outstanding achievements of their members as judged by recognized national or international experts?”
“These don’t really fit who an entrepreneur is,” Cobut insists. “The fact that we have created jobs doesn’t really come into account. The fact that we’ve raised capital from prominent investors isn’t taken into account. Potential isn’t taken into account. If I tell them we’ve got this amazing technology that could revolutionize the way people look at their health, they’re not really going to care. Future potential is not part of the equation.”
In other words, O-1 visas require that the product already be successful in the marketplace, having already created a vast quantity of American jobs, in order to merit serious consideration. Entrepreneurs still winging it on some code and a prayer have a much harder time arguing their case.
“The only thing you can show what have you done before,” Cobut continues. “I’m sure it fits certain profiles—that’s fine—but it doesn’t really work in terms of entrepreneurs.”
In anticipation of applying for O-1 visas, Cobut and Ferber started Echo Labs during their first year at Stanford because they knew they only had about a year after graduation to turn their company into something impressive enough to convince the American government to let them stay. If they launched after graduation, it would have been too late.
If neither of these options pan out for P.J., he still has a back-up plan. He’ll take his company and move it to Canada, which is waiting with open arms.
“Why this is more urgent today than it was 10 years ago is that it used to be that there weren’t a lot of other places you could go,” Robbins says. “We were the most welcoming place in the world. We had problems in our immigration system, but it was really hard to go anywhere else, too. For entrepreneurs, it’s actually gotten a lot easier to go to other countries.”
As countries around the globe have jealously eyed Silicon Valley’s booming success, many have adopted systems to bolster their own bourgeoning tech startup scenes.
One prominent example is Chile. In 2010, the Chilean government partnered with tech giants like Google, Amazon, and Microsoft to establish a program called Startup Chile, through which the government gives approved teach companies equity-free capital, office space in Santiago, connections to key members of the Chilean business community and, most importantly, work visas.
While getting into the program is extremely competitive, Startup Chile has given out over 1,000 startup visas to date.
If neither of these options pan out for P.J., he still has a back-up plan. He’ll take his company and move it to Canada, which is waiting with open arms.
Another country that’s embraced attracting international tech startups is Canada, where Echo Labs is most likely to relocate if Cobut’s visa applications are rejected.
In order to get a Canadian startup visa, an applicant has to meet a trio of criteria. They have to be able to speak either English or French (Cobut speaks both fluently), have a some money in their personal bank accounts, and get a letter of recommendation from an accredited angel investor group, incubator, or venture capitalist.
“You pitch them your idea in the same way you’d pitch any investor for money, and they decide whether or not it’s a viable idea from a good team or not,” Cobut says. He adds that outsourcing the job of evaluating the potential of a startup is a task better left to professional investors who do this sort of thing on a daily basis rather than government bureaucrats who do not. “They send you a letter of recommendation that you put in your application to Canadian immigration, and then you’re in.”
Crucially, these startup visas aren’t temporary. People let into the program are able to immigrate to the country as permanent citizens with no considerations paid to the ultimate success or failure of their endeavor.
The Canadian system is far from perfect. While the government has put a cap on the number of visas allotted at 2,750 per year, the actual number given out has fallen far short. In the first year and half of its existence, the program has only given out a paltry five visas.
Even so, it’s a model that advocates like Cobut and Robbins would like to see adopted in the U.S. There have been some efforts on that front. Proposals to begin issuing startup visas have been introduced in Congress, but they have never made it to the president’s desk as stand-alone bills. One effort was folded into the comprehensive immigration reform bill that passed the Senate in 2013 and ended up dying in the House of Representatives. Since it doesn’t look like Congress is passing immigration reform any time soon, Cobut is left up to the mercy of a system not designed for people in his situation.
It’s easy to argue that the founders of tech startups, not exactly an underprivileged group in American society, shouldn’t be given special treatment over every other class of immigrant. But there’s something incongruous about elected leaders pledging to do whatever possible to grow the economy and get Americans back to work then leaving potential jobs promised by new startups on the table.
Until something changes, people like Cobut are left with a just one option: Dropping their application in the mail and hoping for the best.
Clarification: Echo Labs is currently a four-person team, including Cobut and Ferber.
Photo via letpjstay.com
Aaron Sankin is a former Senior Staff Writer at the Daily Dot who covered the intersection of politics, technology, online privacy, Twitter bots, and the role of dank memes in popular culture. He lives in Seattle, Washington. He joined the Center for Investigative Reporting in 2016.