November 8, 2011

A case for Startup Visas

Recently there’s been a lot of discussion in both Canada and the US about an initiative called Startup Visa. The core of the initiative is a change to immigration policy that would allow entrepreneurs to be classified as a labour class and give them the ability to enter the country.  There cannot be any doubt that gaining more entrepreneurs is a good thing for a country. Statistically the vast majority, if not all, of net job creation in the Canadian and US economies comes from startups.  Entrepreneurs also generate a lot more wealth per capita than other labour classes, and are typically more highly educated than the average.  Furthermore, entrepreneurs in the tech space are more likely to hire, and pay accordingly, other technologists in the country.  The big picture: Countries benefit from bringing in entrepreneurs.  Unfortunately there is a fundamental conflict between traditional immigration systems and the startup world.

Most Western countries allow immigration in four broad categories: skilled workers, students, the wealthy and refugees.  Setting refugee status aside as a special case, the three remaining avenues for immigration just don’t apply to most entrepreneurs:

1.      Immigrating as a Skilled Worker.  Skilled worker programs rely on the immigrant having a confirmed job offer from a local employer. Anybody starting their own business won’t have an employer (and you can’t use your own company – I tried).

2.      Immigrating as a Student. Unfortunately, both Canada and the US specifically prohibit individuals entering their countries as students from working while studying. That includes starting your own business (again, I tried).

3.      Being Wealthy. You can immigrate to Canada if you have “intentions to buy a farm” (no minimum net worth) or have a minimum net worth of $300k. Hyper inflated real estate counts for this net worth calculation, but owning equity in a startup that has raised millions doesn’t (I tried). In other words, you are either already wealthy in conventional terms, or you simply cannot get into the country to set up a new business.

Based on these criteria, Bill Gates, Steve Jobs, Mark Zuckerberg, Sergey Brin & Larry Page, all wouldn’t have made it into the country to start their businesses.  That is a problem.

Enter the Startup Visa

The challenge for the proponents of the Startup Visa is the definition of ‘Entrepreneur.’  Countries don’t want to create a system where everyone just calls themselves an entrepreneur (Selling old stuff on e-bay, not making minimum wage, and having no possible way to scale a ‘business’ is not entrepreneurship).   Startup Visa Canada suggests dealing with this by using a litmus test similar to the existing job offer requirement:  $150,000 in financing from an accredited investor.  While this would certainly be better than no benchmark at all, I recommend an alternative set of criteria and suggest an additional avenue for bringing potential entrepreneurs into the country.

1. The investment criterion gives a disproportionate amount of power to the venture capital community.  It also eliminates a number of scenarios under which startups are founded.  None of my own ventures, SunnyBrook, BrightSide, and TandemLaunch for example, would not have qualified at all under this scheme.  SunnyBrook initially did not meet the defined level of investment; BrightSide received most of its investment from Angels and foreign investors (all accredited but many not local), and; TandemLaunch has been profitable right out of the gate and thus hasn’t required investors at all.

My counter proposal is to use a measure of direct economic benefit to Canada as the litmus test: job creation.  If you as the founder are your only employee, and you don’t have the ability to pay wages, your startup will fail.  At some point your business needs to scale and you will at least have to start paying some people minimum wage.  I understand that there is no direct correlation between startup success and job creation at higher numbers of jobs, but some scaling is necessary for any venture to consider itself successful.  I would therefore recommend that the entry requirement for entrepreneurs be the creation of at least two jobs (2 founders or founder + employee) at minimum wage or more, regardless of whether the money comes from investments or other sources.  This ensures a certain level of entrepreneurial ability, while allowing for the flexibility and diversity that characterizes startups You can force one of those jobs to be a Canadian hire if you want to bring a nationalist element into the proposal (I wouldn’t recommend it but politicians often need such tools to please the masses).

2. The arbitrary distinction between studying and working absolutely has to change.  It might feel intuitive that student permits shouldn’t allow you to work, and work permits shouldn’t allow you to study, but forcing entrants to Canada to choose one or the other actually limits their potential contribution to Canada as technology entrepreneurs.  If an immigrant decides to maintain a study permit, society will lose a potentially lucrative startup founded by somebody who is already in the country: committed and admitted.  Worse, if a potential entrant chooses a venture over their education, society gets an entrepreneur without a solid academic background.  If you are lucky as a society and that venture succeeds, similar to ventures like Facebook or Microsoft, you win!  But since most startups fail, you could just end up with a failed venture and someone with limited education and prospects stuck in the country.  It makes more sense to allow students to work as entrepreneurs, so long as they maintain a certain grade point average, and meet the first criteria of job creation.

Tech entrepreneurs are one of the best types of immigrants because they create jobs.  Anything that stands in the way of attracting and retaining bright entrepreneurial leaders causes direct damage to our society. While increasing calls for a Startup Visa in both Canada and the US are good, venture capital investment shouldn’t be the criteria for selecting entrants.  Job and wealth creation is the ultimate societal benefit, and they should, therefore, be the ultimate criterion.

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