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Immigrant entrepreneurship stalls for the first time in decades: study

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High-tech, immigrant-founded startups — a critical source of innovation for the U.S. economy — has stagnated and is on the verge of decline, a new study shows.

The study, published by the Kauffman Foundation, shows that the proportion of immigrant-founded companies nationwide has slipped from 25.3% to 24.3% since 2005. The drop is even more pronounced in Silicon Valley, where the percentage of immigrant-founded startups declined from 52.4% to 43.9%.

The research, conducted by Vivek Wadhwa, AnnaLee Saxenian and F. Daniel Siciliano, shows that the United States is in the midst of an  historically unprecedented halt in high-growth, immigrant-founded startups. To blame are an increasingly unwelcoming immigration system and environment in the U.S. that has created a "reverse brain drain."

The implications are significant. Immigrant founders, who are most likely to start companies in the innovation/manufacturing-related services (45%) and software (22%) industries, employed about 560,000 workers and generated an estimated $63 billion in sales from 2006 to 2012.

As Wadhwa, a well-known advocate of technology entrepreneurship, puts it:

"The U.S. risks losing a key growth engine just when the economy needs job creators more than ever. The U.S. can reverse these trends with changes in policies and opportunities, if it acts swiftly. It is imperative that we create a startup visa for these entrepreneurs and expand the number of green cards for skilled foreigners to work in these startups. Many immigrants would gladly remain in the United States to start and grow companies that will lead to jobs."

There are some novel workarounds under development in which immigrant entrepreneurs can participate in the U.S. economy. For example, as reported here at SmartPlanet, Blueseed is launching a startup ship that will anchor offshore from Silicon Valley, enabling foreign entrepreneurs to work nearby, but avoid jumping through the hoops of U.S. visa requirements.

From the 107,819 engineering and technology companies founded in the last six years, the study examined a random sample of 1,882 companies in a nationwide survey. Of those companies, 458 had at least one foreign-born founder. The exceptions to this downward trend were immigrants from India. Although founders in the study hailed from more than 60 countries, 33.2% were Indian, an increase of 7% in 2005. Indians, in fact, founded more of the engineering and technology firms than immigrants born in the next nine immigrant-founder countries combined.

After India, immigrant founders represented China (8.1%), the United Kingdom (6.3%), Canada (4.2%), Germany (3.9%), Israel (3.5%), Russia (2.4%), Korea (2.2%), Australia (2.0%) and the Netherlands (2.0%).

Immigrant-founded firms were most likely to be located in traditional immigration gateway states: California (31%), Massachusetts (9%), Texas (6%), Florida (6%), New York (5%) and New Jersey (5%).

(Photo: Joe McKendrick.)

— By on October 3, 2012, 11:37 AM PST

Joe McKendrick

Contributing Editor

Joe McKendrick is an independent analyst who tracks the impact of information technology on management and markets. He is a co-author of the SOA Manifesto and has written for Forbes, ZDNet and Database Trends & Applications. He holds a degree from Temple University. He is based in Pennsylvania. Follow him on Twitter. Disclosure