Keep Us Here. Pass Comprehensive Immigration Reform

Engine supports comprehensive immigration reform, and specifically the bipartisan “Gang of Eight” bill that passed out of the Senate Judiciary Committee with amendments that further encourage innovation and boost economic growth.

To the aim of bringing this bill to a vote, and getting it passed into law, we’ve launched Keep Us Here
-- a campaign centered around online tools to call, write to, and tweet at, Congress.

This is a unique moment in American politics, and you can be a part of it.

For this to work, we need to mobilize startups, entrepreneurs, investors, innovators, and everyone who wants an immigration system that works for America in a global economy. We also hope to build a broader coalition, including a wider range of interest groups also pushing for comprehensive immigration reform.

Why does it matter?

1. Startups are responsible for all net job growth over the last twenty years
2. Engine Advocacy research tells us that for every new high-tech job, 4.3 other jobs are created in a local economy
3. With forty percent of Fortune 500 companies founded by immigrants, or the children of immigrants, it’s critically important that we safeguard the ability of the next generation of founders to start business here.
4. Under the current system we are losing knowledge, and losing out to other countries who are welcoming American-taught talent with open arms

Startups promise the rebirth -- and rejuvenation -- of the American economy. Startups can power the next generation of growth in the American economy if we let them.

Engine is working towards an immigration system that works for the United States in a global economy, and we need your help.

You can tell policymakers that you care about knowledge, talent, jobs, growth, and keeping the U.S. competitive in the global economy. Let’s raise our voices to encourage the Senate to pass comprehensive immigration reform now.

Go to Keep Us Here
. Write a letter to your Senator, tweet at Congress, and pledge to call your Senator directly on June 18th, to show your support for comprehensive immigration reform.

Use the image above as your Facebook cover picture, and the badge below for your website. If you want any further messaging, or other images, don't hesitate to reach out to us at comms@engine.is.

Unlicensed Spectrum Can Drive Innovation

Engine has filed a comment with the Federal Communications Commission (FCC) encouraging broader allocation of unlicensed spectrum in the 5 GHz band. If that sounds confusing, don’t worry; spectrum management is a highly technical area of public policy. We’re speaking up because innovators need spaces to develop their ideas for new technologies and devices.

Let’s take a step back. Spectrum is allocated to commercial users through one of three main methods. It’s auctioned, as is the case with most cellular voice and data airwaves. It’s assigned, a method that has fallen out of favor since the rise of the FCC auction system but had been widely used for television broadcasters. It is also opened up, allowing users to operate on the same wireless frequencies by setting standards to prevent interference. You’re probably familiar with some unlicensed standards; they include technologies like WiFi, Bluetooth, and RFID.

Why does unlicensed spectrum matter to startups? While spectrum is a public resource, it’s tightly regulated to keep different users from broadcasting on top of each other. As a result it’s also very hard to access. In addition to regulation, the FCC has raised billions of dollars from spectrum auctions over the last twenty years, and Congress in turn has prioritized bringing in money for the federal government, putting new auctions at the front of the policy agenda. While steps have been taken to free more spectrum for unlicensed use, very few new technologies have been deployed on opened frequencies.

It’s critical that government sees unlicensed spectrum as an investment in the future. Wireless policy is as much about opportunity as it is about utilization. Just as policy decisions laid the foundation for the deployment of LTE technologies, more needs to be done for innovators looking to roll out compelling point-to-point technology, internet-of-things technologies like smart grid, and even faster, more robust WiFi standards.

Spectrum management is not a zero-sum game. Allowing innovators access to more spectrum with fewer regulatory limitations won’t necessarily crowd out existing users. We will continue to work with regulators and legislators to find opportunities for innovators to make the most of this critical public resource.

Photo courtesy of Colin Howley.

Startups Speak: The Entrepreneur Visa is Key

Peruvian born, Fulbright scholar, engineer, entrepreneur, and Hattery Co-Founder and Managing Director, Luis Arbulu, takes us through his perspective on current immigration policy and the Senate “Gang of Eight” bill. The highlight? The visa specifically for entrepreneurs.

In his spare time, Luis works with the White House Office of Science and Technology Policy and USCIS as an Entrepreneur in Residence, advocating for growing companies and entrepreneurs right at the center of it all.

If you have a story to tell, email editorial@engine.is

Immigration Bill Moves to Senate Floor with Amendments

The amended Senate “Gang of Eight” immigration bill yesterday passed 13-5 out of the Senate Judiciary Committee -- but not before concessions were made by Chairman Patrick Leahy (D-VT), and Senators Orrin Hatch (R-UT) and Charles Schumer (D-NY) reached an agreement on certain provisions for high-skilled labor. 

Now the bill moves forward, with significant bipartisan support from the Committee, to the full Senate for their consideration, and then hopefully to a vote. Majority Leader Harry Reid (D-NV) said this bill will be first up for debate when Senators return from their Memorial Day break, and Senate Minority Leader Mitch McConnell (R-KY) vowed that Republicans would not block the immigration bill from the floor.

In a statement on Tuesday night, President Obama thanked “the leadership of Chairman Leahy and a bipartisan group of eight Senators,” and said that “the legislation...is largely consistent with the principles of commonsense reform I have proposed and meets the challenge of fixing our broken immigration system.”

Since the proposal was first released last month, over 300 amendments -- offered by Republicans and Democrats -- were submitted to the Senate Judiciary Committee for consideration. The Committee debated over 100 and has done a great job of making the bill better where necessary, but also rejecting efforts to severely restrict legal immigration, which would impede the ability to meet workforce needs. Moreover, this mark-up process is essential in giving everyone a stake in the final product as it moves through the approval process.

Focusing on the high-skilled sections of the bill, a host of amendments have been approved, and two were approved unanimously: an amendment by Senator Sheldon Whitehouse (D-RI) to help participants in startup accelerators obtain INVEST visas, and Senator Leahy’s amendment to permanently authorize the EB-5 visa program. The program lets a private entity or state apply to become an approved regional center, and then propose development projects for immigrant investors.

Looking at the H-1B system, the efforts of Senator Hatch were particularly noteworthy; his amendment, agreed upon late in the deliberations, increases the minimum number of high-tech H1-B visas allowed annually -- but it does so without accounting for domestic economic conditions. On the issue of fraud within the system, the broad bill requires employers filing visa petitions to first offer a job to an “equally qualified” U.S. worker, but in another amendment from Senator Hatch yet to be debated, this requirement would only be imposed on “H-1B-dependent” companies.

On student visas and funding for education, the committee adopted an amendment from Senator Grassley (R-IA) to improve the student and exchange visitor visa programs, and a further amendment from Senator Hatch to put the labor certification fee towards “improving science, technology, engineering, and mathematics education and training in the United States.”

Late in the day, still trying to get the bill to the floor, Senators Leahy and Schumer were forced to agree with dissenting members of the committee to hold off on adding an amendment that would have allowed certain provisions for same-sex couples. As a result of this, and other compromises, Committee members and other Senators know the bill is not perfect, but it is the best shot at fixing our broken immigration system. And with deals already being made between supporters and those who had previously been detractors as part of the full Senate markup process, it’s clear that Senate leadership on both sides of the aisle is looking for a process which swiftly and judiciously moves the bill to a vote. 

Last night’s developments are good news for those of us fighting for reform, but now is the time to step on the gas. The need for pressure on Senators to pass this bill and keep moving towards fixing our broken system is real, and it is immediate. 

In league with organizations from across the political spectrum, including Organizing for Action, Consumer Electronics Association, Voto Latino, Silicon Valley Leadership Group and many more, Engine and March For Innovation are launching two days of initiatives across the Internet. Stay tuned to Engine for more news about the March, and what we’ll be doing afterwards as well. Join the March, follow us on Twitter and Facebook, and keep working. Your voices can tilt this debate, help guarantee the bill’s passage, and go a long way towards protecting innovation and building an immigration system that works here in America.

Photo courtesy of  Talk Radio News Service.

Startups Speak: We Won't Be Hiring in the U.S.

Sumit Suman is the co-founder of Mentii, an online mentoring platform connecting successful mentors with aspiring young people. Sumit started the business both in New York and Bangalore in order to benefit from capital, talent and the market across two startup hubs. But, as the co-founder of Mentii, it was imperative that Sumit could work on the U.S. side. This is where the trouble began.

The whole visa process was an expensive distraction, especially during the early bootstrapped stage when the team needed to devote all their resources to finding and proving the market. After receiving a protracted Request For Evidence (RFE), where responding to it would have resulted in further legal expenses, Sumit had no choice but to withdraw his visa application. This is despite the fact that Mentii had already invested 40 percent of their total expenditure on immigration-related costs!

Now back in India, Sumit explains that his decision was the only option for his business; even if there was a legal (though uncertain) way to stay in the U.S. in order to grow the company, the cost of doing so was too prohibitive. While the Mentii team will still find a way to engage the U.S. market, and U.S. investors, the team will not be growing here -- in other words, no additional jobs will be created in America.

Startups Speak: Sumit Suman

from Engine Advocacy on Vimeo.

If you have an immigration story to tell, email editorial@engine.is

Engine to Senate Judiciary: Pass Immigration Reform Now

Engine endorses the Senate “Gang of 8” proposal on comprehensive immigration reform. So, on behalf of more than 500 startup members and other startup companies across the U.S., we sent a letter of support to Chairman Patrick Leahy (D-VT), Ranking Member Charles Grassley (R-IA) and the members of the Senate Judiciary Committee.

We thought it prudent at this juncture to thank the Senators who have been working hard on this proposal. Going forward, we hope their good work will be the subject of robust debate and then we’ll look towards the swift passage of this bill as we march towards solving our nation’s broken immigration system.

The Judiciary Committee is the first stop on the bill’s journey to hopefully becoming law. The markup process that begins today will amend and refine the legislation into a bill that can pass in the Senate, and one that can also do real and permanent good for people and businesses across the country who are in need of a working immigration system.

As we’ve said before, you can take action as well by committing to remain a vocal participant in this process. You can sign up for the March for Innovation which is now only 11 days away. It is only with your voice that we’ll be able to make a difference on this issue, so sign up, get involved and let your voice be heard today.

Here’s the full text of the letter:

Dear Chairman Leahy and Ranking Member Grassley and members of the Committee,

I’m writing to you, on behalf of the startup community, in support of S. 744 -- the recent Comprehensive Immigration Reform proposal released by your Senate colleagues. Engine Advocacy represents more than 500 startup companies from all across the United States, and we believe the provisions in this bill would greatly benefit the startup community, and therefore the U.S economy as a whole.

New and young firms are responsible for all new net job growth since 1980, according to research from the Kauffman Foundation. In addition, our own Tech Works research projected that for every job created in the high-tech sector, 4.3 additional jobs will be created in the local goods and services economy, including barbers, lawyers, and health care professionals. Finally, with forty percent of Fortune 500 companies founded by immigrants, or the children of immigrants, it’s critically important that we safeguard the ability of the next generation of founders to start business here.

The proposed INVEST visa will directly benefit immigrant founders and entrepreneurs who want to start a business here, and already have the support of local venture capitalists. In addition, raising the H-1B visa cap, and expanding the green card system with merit-based visas for high-skilled immigrants, will also make it easier for startups to employ much needed workers. Taking into account recent developments, we also support Senator Hatch’s amendment to make the H-1B visa cap responsive to market demand.

We applaud the work already done by your Senatorial colleagues and look forward to a spirited debate, a robust amendments process, and the opportunity to be a resource for the committee and the Senate at large as the debate advances. In the end, the continued good work of this committee and of Congress can affect real and permanent good for our country -- helping to catalyze continued economic growth in our community, and opportunity for the country as a whole. Startups can power the next generation of growth in the American economy if we let them.

We hope that you will support this proposal that will lay the foundations for a prosperous future.

With thanks,

Michael McGeary
Co-Founder
Engine Advocacy

Photo courtesy of Talk Radio News Service.

Right to Know or Right to Innovate?

In recent weeks, California legislators have shown renewed interest in redrafting online privacy regulations, leading to the introduction of over a dozen bills and the creation of a Select Committee on Privacy to help “update California privacy from the brick and mortar world.” Most efforts have been focused on AB1291 -- the Right to Know Act. While supporters of this two-year  bill -- including EFF and the ACLU -- claim it offers more transparency and much needed updates to privacy laws, there are almost no additional protections to users, and the bill imposes significant hardship on startups.

As we spend more time on the internet, conducting more of the business of our lives, online privacy has rightfully come to the forefront of efforts by government regulators and advocacy organizations. Regulations are necessary to protect children, prevent abusive marketing, and allow consumers to make informed choices about the products they use. Unfortunately, Right to Know does none of that.

This bill offers few, if any, improvements to the existing “Shine the Light” law, which already requires businesses to provide information to consumers about direct disclosures of personal information to third parties. At the heart of Right to Know is a new requirement that businesses make all “reasonably available” user data available upon request -- thousands and thousands of pages of it. This ‘give us everything’ mentality might feel right from an intuitive perspective, but it does not improve transparency (what does “reasonably available” even mean?), and it makes data more costly.

For a small startup, this bill is like a regulatory DDoS attack -- there just aren’t enough resources to hunt down all the data about users, especially when you consider the ever-changing nature of databases in growing companies. The beauty of startups is that we collect every piece of information until we can determine what is useful, allowing us to innovate and improve products along the way.

As more consumer-facing services live online, there is a continued need for trust between users and service providers. Startups -- the pioneers of the next great technologies -- need to foster that trust, but giving users thousands of pages of data will not do much to help consumers make informed choices. Right to Know, though well intentioned, will not help consumers make smarter decisions about products, but it could stifle the innovation of startups.

Startups Speak: Immigration and the Innovation Economy

This post is by Fabien Beckers, Co-Founder at Morpheus Medical.

I am a foreign-born entrepreneur in America. My company, Morpheus Medical, has created the first cardiac diagnostic tool that provides 3D interactivity, flow and pressure inside the heart. And all it takes is a ten minute MRI exam. But since I am a French citizen, I faced deportation, and the possibility of losing the chance to build this life-saving company. Understanding the importance of immigration reform is understanding what innovators, of any nationality, are capable of achieving.

Heart-related diseases account for more than a third of all U.S. deaths, and in 2010, the total cost was estimated at around $444 billion; treatment of these diseases accounts for about $1 of every $6 spent on health care in this country. These numbers are second only to oncology -- the diagnosis and treatment of cancer.

Responding to the current lack of accuracy in diagnosis, our technology not only solves the problem, it also reduces the time required by doctors, and therefore lowers the cost. In addition, the non-invasive aspect makes our solution perfectly suited to diagnosing small children with heart defects and diseases.

After studying for my PhD at Cambridge in the UK, I came to the United States in 2010 to attend Stanford’s Graduate School of Business where I certainly benefited from the best education this country has to offer. But when I graduated and wanted to start a business of my own, I faced an additional challenge as a result of my nationality.

Founding a business is already a very challenging and chaotic process. When finding partners, investors and customers is just the beginning, immigration battles present another, totally unnecessary, hurdle.

At Morpheus, we were lucky enough to pique investor interest early, but unfortunately, the investment was conditional upon securing my immigration status. When my H-1B application was denied, my appeal failed, and other avenues were successively closed off, the survival of this company came down to one person in one office in California who thankfully put a stamp on my O1 application.

This is not how the system should work.

No company, community, or country can survive without talent. So we should be helping brilliant innovators who want to build companies that will change lives, here in America. Everyone I’ve spoken to -- Republicans and Democrats -- agrees that this issue needs attention. Now is the chance to act; this bill needs our support. A quarter of all tech startups have an immigrant founder. I think I speak for many of these founders when I say that I want to stay here and build a successful company that creates jobs. We need an immigration system that supports the American innovation economy.

If you have an immigration story to tell email editorial@engine.is.

It’s All Relative: STEM Workers are in High Demand

Recent claims of an excess supply of high-skilled workers in the STEM occupations of science, technology, engineering and math are at odds with anecdotal and empirical evidence. While it’s difficult to definitively conclude whether or not there is a shortage of workers in any field, publicly available government data and common sense reject the notion that there are “too many” high-tech workers in the United States. More importantly, this entire discussion misses a larger point—high-skilled employment isn’t a zero sum game where a fixed set of workers are competing for a fixed set of jobs in an economy free from global competition. Let’s separate fact from fiction as we move forward with immigration reform.

Background

As the immigration reform debate heats up, so too has the rhetoric. One issue that has generally received broad support is the idea of expanding visas for high-skilled foreign workers—in particular those in the STEM fields of science, technology, engineering and math. Such support is based on the view that there aren’t enough qualified native-born American workers to fill demand for these roles. It also comes from the acknowledgment that employment in these fields is critical to economic growth, making them a national priority.

Despite this, some critics have voiced concerns about expanding visas for STEM workers, arguing not only that there isn’t a shortage of STEM workers, but in fact there are too many of them. Expanding high-skilled work visas, they claim, would push native-born American workers out of key technological occupations and reduce the wages of those who remain in them. Such claims are certainly outside the mainstream, but they have been taken seriously enough to appear recently in the Op-Ed page of the New York Times, the Washington Post, the Wall Street Journal, and most recently, the Atlantic.

So, which is it? Are there too few or too many STEM workers in the United States? It can’t be both. Since the truth has important implications for thousands of workers, startups, and the economy, we had better get it right.

The “we have too many high-tech workers” hypothesis is flawed because it is informed by an incomplete set of information. It also lacks common sense. The aforementioned articles rely upon a November report and a report published last week by the same think-tank, both of which point to tepid inflation-adjusted wage growth in computer and math sciences (CMS) fields—a subset of STEM—as definitive evidence of an abundance of labor supply in those professions.

The fact that inflation-adjusted wages grew slowly during the last decade lacks important context. Quite obviously, there were two economic recessions during this period—one of which was the worst contraction since the Great Depression. Both were followed by “jobless recoveries,” or prolonged periods of low employment growth after the economy has begun to grow again.

At minimum, a more relevant question is: how did wages in the CMS fields, and by extension STEM, grow relative to other professions? Looking at just one side of the story is the intellectual equivalent of concluding that the Cincinnati Reds lost last night because they only scored 2 runs. They actually won, because the team they played, the St. Louis Cardinals, scored just 1 run. Context matters.

A more complete and responsible analysis would look at relative performance as well as a broader set of measures to determine labor market “tightness”—a term that applies to areas where potential shortages may exist. A tight labor market would have some or all of these qualities relative to others: rapid employment and wage growth, low unemployment, and a high prevalence of job vacancies.

One final note before we get started: because this debate is taking place in the context of immigration reform for high-skilled workers, whenever possible the data here will be restricted to workers with at least a bachelor’s degree.

Wage Growth

Economic theory says that if shortages existed, prices (wages) would adjust upward until supply (workers) met demand (employers). But the reality is much more complicated. For example, wages adjust slowly and workers must learn new skills—especially for technical roles like in STEM. Still, it’s an important measure for assessing labor market tightness.

The chart below shows how the inflation-adjusted median wage has changed since January 2000 through 2012, for three groups of workers—those in the STEM occupations, those in the CMS subset of STEM, and those in all occupations outside of STEM.

Real Median Wage Change, Bachelor’s Degree Holders (2000-2012)

Source: U.S. Census Bureau, Current Population Survey; Bureau of Labor Statistics, CPI; Engine calculations. Note: Data have been smoothed using a 12-month moving-average

The median wage in STEM and CMS occupations grew by an inflation-adjusted 3.5 percent and 4.0 percent respectively. That amounts to average annual growth rates of around one-third of a percent. Ouch.

But let’s take look at this in context: it’s been a very rough twelve years. As I mentioned before, there were two recessions—one of them the worst economic contraction since the Great Depression—followed by two jobless recoveries. The fact that there was wage growth at all during this period might actually be impressive.

Compared with workers in other fields, wage growth for STEM and CMS workers was actually quite robust. The inflation-adjusted median wage for all occupations outside of STEM fell by 5.5 percent during the same period, for a decline of half a percent each year on average.

Employment and Unemployment

Beyond wage growth, there are a few other measures to consider when analyzing labor market tightness—here we look at employment growth and the unemployment rate before turning to job vacancies afterward.

Employment Change, Bachelor’s Degree Holders (2000-2012)

Source: U.S. Census Bureau, CPS; Engine calculations. Note: Data have been smoothed using a 12-month moving-average

This chart shows employment growth since January 2000 for college-educated workers in the STEM, CMS and non-STEM categories. Employment in the non-STEM occupations increased 31.3 percent, for an average annual gain of 2.3 percent. STEM fields performed even better, growing 41.6 percent or 2.9 percent per year on average—that’s about one-third more growth than non-STEM. The CMS subset blew the others away—more than doubling non-STEM growth as it increased by 83.1 percent or 5.2 percent annually on average.

Unemployment Rate, Bachelor’s Degree Holders (2000-2012)

 Source: U.S. Census Bureau, CPS; Engine calculations. Note: Data have been smoothed using a 12-month moving-average

This chart shows the unemployment rate for each of our occupational groups during the same time period. The unemployment rate shows the number of people without a job, but who are willing and able to work, and are actively looking for a job (the unemployed), as a share of the total labor force (the unemployed plus the employed). In this case, the occupation assigned to an unemployed person would be the one they held in their last position.

As the chart shows, unemployment rates for college-educated workers of all varieties have been quite low over the last twelve years. The rate for STEM, and especially CMS workers, spiked during the dot-com boom—highlighting the job losses that occurred in that segment of the economy. Important to note, however, is that after peaking unemployment in STEM and CMS fell sharply. This indicates the ease with which unemployed workers in those fields were able to find new work—highlighting their relative value to employers.

The three rates peaked at about the same level during the Great Recession, though STEM and CMS unemployment has fallen sharply since mid-2010; declining by about 2.5 and 2.0 percentage points respectively during that two-year period. Unemployment for workers outside of STEM has only declined by about half a percentage point during the same period. Overall, the evidence here is more mixed: STEM workers seem to face higher volatility while unemployment for non-STEM workers rises less during recessions but also falls slower in recoveries. Even so, the STEM rate has fallen sharply in the last year.

Job Vacancies

Perhaps the most important measure for assessing labor market tightness is the ability of employers to fill open positions. If labor shortages exist, it would be difficult to fill open positions—openings would remain vacant for extended periods or discouraged employers may not even bother posting them at all. Since the reasons for not filling a job are complex, and even if they weren’t, data are elusive, the next best option is to compare the number of open positions with the number of workers available to fill them.

Here, we look at two ways of presenting that data. One caveat first—the job vacancy data used here aren’t available by level of educational attainment. Therefore, we are unable to restrict this portion of the analysis to workers with a bachelor’s degree or more. As a result, the differences here between STEM, CMS and non-STEM may be somewhat overstated.

Number of Unemployed per Job Opening (2005-2012)

 Source: U.S. Census Bureau, CPS; Conference Board, HWOL; Bureau of Labor Statistics, JOLTS; Engine calculations

In a market with an abundance of available labor, the ratio of unemployed per job opening would be high—a large number of workers would be competing with one another for a smaller number of jobs. Where the labor market is tight, this number would be low—in other words demand is outstripping available supply. While the reality is more complicated, this is still a very good way to estimate the relationship between demand and supply.

As the data make clear, the market in STEM and CMS fields is much, much tighter than for fields outside of STEM. At the end of 2012, there were 2.4 CMS job openings for each unemployed CMS worker and 1.4 STEM openings for each unemployed STEM worker. That’s a lot of job openings for each unemployed worker to potentially be matched with. The exact opposite was true in non-STEM fields, where 4 unemployed workers battled for each job opening.

Job Vacancy Rate (2005-2012)

 Source: U.S. Census Bureau, CPS; Conference Board, HWOL; Bureau of Labor Statistics, JOLTS; Engine calculations

If you’re unconvinced that unemployed workers are an adequate measure of available labor, we can extend that definition to include workers who are currently employed in those roles. Recall that the unemployed plus the employed constitute the labor force. Here, we use the labor force as a measure of labor availability for STEM, CMS and non-STEM workers.

This time, the number of job openings is in the numerator and is expressed as a share of the labor force. This is often referred to as the job vacancy rate. Here, a bigger number would indicate a tighter labor market, showing that there are a larger number of job openings relative to the ability of the labor force to fill them. A smaller job vacancy rate would indicate the opposite.

We still see a similar story, though less pronounced: there is a larger number of job openings relative to available labor to fill those roles in STEM and CMS, compared with fields outside of STEM. The difference between this chart and the prior one likely has to do with a more rapidly declining unemployment rate and higher employment growth in STEM and CMS—both positive signs.

Conclusion

Wage growth for STEM and CMS workers with at least a bachelor’s degree has been more robust during the last twelve years than it has been for workers outside of these fields. Not only did wages grow at the median for these fields while wages in all other professions fell substantially, that growth also reached workers with a broader set of income levels.

Looking at other measures, available labor to meet job openings has been scarcer for the STEM and CMS fields, employment growth has been more robust, and unemployment has fallen to lower levels. The evidence is more mixed when it comes to unemployment, but overall the consistency across measures and the magnitude of differences point to tighter labor markets in these fields.

In fact, according to performance thresholds to assess labor market tightness outlined in a comprehensive review of the literature published by the Bureau of Labor Statistics, the CMS labor market is tight on each of three metrics (employment, wages, and unemployment). STEM is tight on two of three (wages and unemployment) and goes halfway on the third (employment). The BLS report doesn’t provide threshold criteria for job vacancies because these data weren’t available at that time.

This highlights a few important points worth making. Firstly, providing definitive evidence of the existence or nonexistence of a labor shortage in any profession is difficult, both because what constitutes a shortage can be broad based and because the appropriate data can be elusive. It’s irresponsible for researchers to claim there is an oversupply of STEM workers because of one metric taken outside of its proper context.

To be clear, the approach here does not claim that there is a shortage of workers in STEM and CMS fields. Instead, it shows that these labor markets are tighter than others based on a broad set of measures. At minimum, it is a clear rejection of the notion that we have too many high-tech workers in the United States—an argument that not only fails on evidence, but common sense as well.

Secondly, and perhaps most importantly, the argument about whether there is or is not a true shortage of STEM workers misses the entire point. Recent research has shown that foreign-born STEM workers increase employment and wage opportunities for high-skilled native-born American workers (STEM and non-STEM). In other words, these workers are complementary to, not substitutes for, one another. Foreign-born STEM workers are important contributors to productivity gains, which fuel economic growth and national prosperity. And because these workers tend to be employed in sectors of the economy that compete globally, if the United States doesn’t capture the talent and therefore growth, someone else will.

Let’s get our facts straight, and in context, as we move forward with immigration reform. Sure, foreign worker programs like the H-1B visa have a number of problems and need rethinking. So does our education system. But let’s fix those, not shut our doors to high-skilled foreign workers based on poor economics. That would be throwing the baby out with the bathwater, and in the process, shooting ourselves in the foot.

Ian Hathaway is the research director at Engine.

Startups Speak: Let Me Grow My Business

Sacha Tueni, co-founder of Changemakrs, grew up in Austria. When he moved to the United States to work with Facebook’s mobile partnership team in 2009, he was granted a visa within 3 short months. As a result, when Sacha decided to start his own business, he had no sense of how complicated the immigration process could actually be for a small company with limited resources. Now Sacha spends a third of his time talking to his lawyer, instead of growing his business.

Startups Speak: Sacha Tueni from Engine Advocacy on Vimeo.

If you have an immigration story to tell, email editorial@engine.is.

Bill to Amend 1986 Communications Privacy Law Goes to Senate

Senator Patrick Leahy (D-VT.), author of the original Electronic Communications Privacy Act (or ECPA), is once again pushing for amendments that take into account rapid advances in technology since, er, 1986. Passing the Senate Judiciary Committee today, the bill will soon be debated by the Senate.

In Leahy’s own words, the “bill takes several important steps to improve Americans’ digital privacy rights, while also promoting new technologies -- like cloud computing -- and accommodating the legitimate needs of law enforcement.”

Engine, together with a coalition of tech companies, is pleased with the clarity this new act brings to how content can be accessed by government; excluding emergencies, law enforcement must obtain a warrant in order to compel a service provider to disclose the private content of users.

Since data plays an increasingly important role for many startups, uncertainty about compliance increases the burden of time and resources, and puts a strain on user trust. Currently, a complex legal request from law enforcement would force startups to chose between legal action and alienating users.

The bipartisan Amendment Act is co-sponsored by Senator Mike Lee (R-UT). “When ECPA was enacted”, Senator Lee explained, “email was primarily a means of communicating information, not storing it. Today, we use our email accounts as digital filing cabinets, where we store many of the personal documents and sensitive information that the Fourth Amendment was meant to protect. This bill takes an essential step toward ensuring that the private life of Americans remains private.”

Here’s a rundown of this new bill:

• Search warrant required for email and other electronic communications, when those communications are stored with a third-party service provider.
• Requirement does not apply to other Federal crimina or national security laws including Wiretap Act and Foreign Intelligence Surveillance Act of 1978
• Government can use administrative, civil discovery and grand jury subpoena to obtain corporate email and other electronic communications directly from a corporate entity, when the content is on an internal email systemGovernment can use civil discovery subpoenas to obtain non-content information
• Bill eliminates the outdated “180-day” rule that calls for different legal standards for the government to obtain email content depending upon the age of an email
• Government must notify an individual whose electronic communications have been disclosed within 10 days of obtaining a search warrant, but they can also seek a court order to delay this notice in order to protect integrity of ongoing investigations

Tweet at any or all of the members of the Senate Judiciary Committee listed below to tell them that protecting data matters to startups.

Chairman Patrick Leahy @SenatorLeahy

Sen. Michael Lee @SenMikeLee

Ranking Member Charles Grassley @ChuckGrassley

Sen. Dianne Feinstein @SenFeinstein

Sen. Orrin Hatch @Orrin Hatch

Sen. Chuck Schumer @ChuckSchumer

Sen. Dick Durbin @SenatorDurbin

Sen. Jeff Sessions @SenatorSessions

Sen. Sheldon Whitehouse @SenWhitehouse

Sen. Lindsey Graham @GrahamBlog

Sen. Amy Klobuchar @amyklobuchar

Sen. John Cornyn @JohnCornyn

Sen. Al Franken @alfranken

Sen. Christopher Coons @ChrisCoons

Sen. Richard Blumenthal @SenBlumenthal

Sen. Ted Cruz @TedCruz

Sen. Jeff Flake @JeffFlake

Sen. Mazie Hirono @maziehirono

Photo courtesy of Talk Radio News Service.

After the Gang of Eight

Last Wednesday, the Senate’s so-called “Gang of 8” released their proposal to fix our nation’s immigration system. The 844-page bill, (which you can read here you speak legal), aims to rebuild a system which has become overloaded, burdensome and anti-competitive in a global context. The nuanced proposal covers multiple sectors of our economy, and different skill levels of potential immigrants.

For our community, there are many encouraging signs which we’ve written about in our full policy update. The inclusion of provisions like a startup visa, merit-based visas, and an increase in H-1B visas provide for more and better pathways for immigrant entrepreneurs to build business in America.

So, ok, great! Job well done everyone. Glad we fixed that. Is it time to move on?

Not even remotely.

From at least one conversation I had at the end of last week with a tired Senate staffer, I can report that “now is the time for the real work to begin.” This comes from an individual who has been working on immigration legislation with other Senate offices for the last four years.

The next step for the bill is to wind through the sometimes-rocky committee and amendment processes in the Senate. We also expect, in fairly short order, to see a companion piece of legislation from a similarly tasked group of House members. Then, the pundits, interest groups, and others will weigh in on what they see.

If the Senate bill passes in both chambers, it can be sent for the President’s signature to become law. If the Senate and House proposals pass through both chambers, the bills must then be conflated before reaching the President’s desk. In the worst case scenario, neither bill passes both houses and we start again from the beginning.

Now more than ever, it is critically important for you to keep the pressure on Congress to make sure the immigration debate and reform legislation continues to advance -- we need to ensure that the positive provisions for our startup community are represented in the final bill. We can do this by reminding members of Congress that building an immigration system that works, and can scale, is of critical importance to our ability to remain competitive in a global marketplace. We started by telling the House Small Business Committee just how important startups are to the U.S. economy.

Right now, the best way to take action is to join with our friends at March for Innovation. There, you’ll find resources, ways to get active, and can sign up for the Thunderclap in anticipation of the upcoming virtual march on Washington. We’ll be making more resources available in the coming weeks and months as this process continues.

To ensure we reach the eventual goal of rebuilding a broken immigration system, we as a startup community need to continue our active engagement in this process as it unfolds. Our voices will be critically important, and our work is underway. Engine, and all of its resources, stand at the ready to help reach our goal.

If you have an immigration story to tell, email editorial@engine.is

Startups Speak: Reward Individuals Who Have Contributed

Michael Ang (or Mang as he is better known) is an engineer from Canada. He works for Changemakrs here in San Francisco. In fact, Michael has been working in the United States for over fifteen years -- mostly within the startup community. He was the first employee of Xoom -- a company that is now post IPO and employs hundreds of Americans. Despite Michael’s experience, his masters degree from NYU, and his contribution to the startup community -- and the U.S. economy as a whole, he has only ever been granted a succession of temporary visas. Watch Michael tell his story, and tell us what he’s most excited about in the new immigration bill.

Startups Speak: Michael Ang from Engine Advocacy on Vimeo.

 If you have an immigration story to tell, email editorial@engine.is.

How the Gang of Eight Immigration Bill Impacts Startups

After months of waiting, the bipartisan Gang of Eight Senators released an immigration reform bill (full 844 pages here!) The plan we’re seeing today is not only the first real attempt at truly comprehensive immigration reform -- it might also have a shot. The eight Senators included provisions for high-skilled labor that are a testament to the powerful role the tech community has played coming together strongly on this issue.

Despite some areas for improvement, this plan is something the technology community can, and should, rally behind. The new Invest Visa (better known by the community as a Startup Visa) will really encourage smart individuals to start businesses in the United States. In addition, provisions making it easier for students to apply for green cards will encourage the best and the brightest to come to school here and stay, and relieve the pressure on the H-1B system. This bill is also planning for the next generation of innovators with much-needed investments in our own education system.

First Look Key Takeaways:

1. Starting a business is lot easier for foreign founders with two types of Startup Visa

2. Hiring Foreign Talent

• H-1B reform will increase the number of visas available
• Increases in wage requirements do not take into account equity or other benefits, and require startups to pay median wages determined by metro area. This might make it difficult for smaller companies to compete with larger companies -- with deeper pockets -- for top talent.
• More green cards for startup workers through plans to reduce the backlog, and institute new categories: a larger skilled workers employment-based category, and a merit-based category.
• New merit visa includes provisions for entrepreneurs and individuals in high-demand jobs.

Here are the details:

1. Foreign startup founders get a Startup Visa

Currently, there is no visa class for foreign individuals who want to stay in the United States to start a company. This proposal makes it easier by creating an Invest (Investing in New Venture, Entrepreneurial Startups and Technologies) Visa with two categories -- the first is a temporary visa, the second grants permanent residency. Both categories establish reasonable criteria for startup founders as they work to establish their business in this country.

The startup community knows this better as the startup visa. With reasonable requirements and options for renewal, this is a big step in the right direction. Moreover, it gives lifelines to founders whose first venture might have failed. If further investment is forthcoming, the individual can start again. According to the definition for entrepreneur in this section, up to three individuals of the founding team can use this visa.

a) Non-immigration Invest Visa

• 3 year temporary visa

• No numerical caps, or limits to the number of times an individual can renew.

• To qualify, individuals must show $100,000 in investment from an accredited investor, venture capitalist, or government entity.

• Or if the company already exists, the founder needs to prove that they have created at least three jobs and have an annual revenue of at least $250,000.

• For a full 3 year renewal, the company must employ 3 people with annual revenue of $200,000 for two years, or $250,000 of additional investment.

• For 1 year renewals, the founder must show that the company has made progress towards reaching these requirements.

b) Immigrant Invest Visa

• Grants permanent residency to successful entrepreneurs
• Capped at 10,000 annually
• To qualify, individuals must have maintained a valid nonimmigrant status for at least 2 years, and have created 5 or more jobs in the United States. In addition, the entrepreneur must also have either secured at least $500,000 investment or generated at least $750,000 in annual revenue during the previous 2 years.
• For entrepreneurs with a STEM masters or PhD, the requirement to have maintained a valid nonimmigrant status for at least 2 years is the same, and the other requirements are 4 jobs and $500,000 investment, or 3 jobs and $500,0000 annual revenue.

The revenue and employment requirements should allow most successful startup founders to switch to this permanent visa category. For serial entrepreneurs, however, the time it takes to acquire this visa might be cumbersome. In addition, a founder might not be able to sell a successful venture, or start another, while waiting for visa approval.

2. Hiring Foreign Born Talent

Hiring the right individuals is crucial for startups to grow. Through H-1B reform, changes to the green card allocation system, and new merit-based visas, this bill offers a few changes to the current system that will encourage foreign born talent to remain in the country after completing their studies, slowing the brain drain. But, it might make attracting new talent from abroad comparatively more difficult.

a) Expanding the H-1B

• H-1B visa cap raised from 65,000 to 110,000, with an adjustable cap that can go as high as as high as 180,000 based on the High Skills Jobs Demand Index formula.
• This formula uses the number of visa petitions filed and the unemployment rate in the related occupations category of Bureau of Labor Statistics data from the previous year.

The cap increases are necessary, especially after the 124,000 H-1B applications and resulting visa lottery this year. But this is where the bill falls a little short. Since the cap can only be raised by 10,000 annually, H-1B supply might still be unable respond to the demand. We advocate for an H-IB visa cap that is responsive to the needs of the market.

Higher wage requirements for H-1B recipients

• Previously, employers have been required to pay the prevailing wage for the job.
• This bill changes the method of calculating that wage, identifying it by metro area.
• The range for each metro area would be further divided into tiers -- high, average, and low. H-1B employers will be now required to pay at the “average” level.

Despite trying to counter the perceived abuse of wage depression of H-1B system, the change in wage requirements is where this bill could do more harm than good for startups. Though this is not as steep as expected, and we haven’t seen these wage ranges for startup cities, we’re still concerned that this tenet of the bill will make H-1B hires unaffordable for startups, in comparison to larger companies with bigger budgets. Startups, generally clustered in large metro areas, think San Francisco and New York, with already inflated incomes across a large range, may simply not have enough funding to meet the prevailing wage requirement. This provision also does not account for equity or other benefits, so startups with limited budget for payroll might be able to attract talent, but unable to afford it under these new rules.

Reducing the burden on H1-B

• Up to 25,000 advanced degree holders in STEM fields are exempt from the H-1B cap.
• Students on F-1 visas, earning a bachelors degree or above, will be allowed dual intent, i.e. students with lawful status are also permitted to apply for green cards if employment is secured while still at school, and their potential employers can apply an employment-based visa category (see below).

b) More green cards for startup workers

• Per country caps removed
• Deals with backlog of family and employment based visas by making unused visas available, in addition to using the visas allocated for the new merit based system.
• New definition of family to include spouses and children, exempting them from the employment-based visa cap.
• Priority workers (including developers, without advanced graduate degrees) and advanced degree holders will both be allocated 40% of the available visas, up from 28.6%.

This bill makes great strides towards improving the green card system. Many changes will impact individuals who had long waits for green cards as a result of the country caps. The new family definitions will also make a significant difference, considering that spouses and children of green-card holders used 78,000 the 140,000 EB visas that were approved last year.

c) Merit Based Visas

• Takes effect in 5 years
• Replaces the diversity visa
• Capped at 120,000, to increase in in 5% increments, but must not to exceed 250,000.
• Bequeaths permanent resident status
• Divided evenly into two tiers: high skilled workers and low skilled workers
• The first tier is awarded points based on education (PhDs get more points than masters which get more points than bachelors), years of employment and type of occupation based on job zones (determined by the level of education and skill required for an occupation.)
• Additional points for entrepreneurs who employ 2 other individuals in zone 4 (as many points as for a masters degree), and points for individuals with an offer of employment in a high demand job.
• How high demand jobs are determined is unclear.

What next?

The bill will now be debated on the Senate floor with a period of time allocated for members to attach amendments. While it will certainly help that the Gang of Eight is a bipartisan coalition, opposition still lurks, and arguments about border security, American workers, family visas, and the price tag of reform might make their way into the debate. The danger is that high-skilled reform could get caught in the crossfire. Ideally, the bill would be done before the August recess after which Congress switches to campaign mode ahead of the 2014 midterms.

As Senators Schumer (D-N.Y.) and McCain (R-Ariz.) wrote in the Wall Street Journal yesterday, “Like all genuinely bipartisan efforts, this bill is a compromise. It will not please everyone, and no one got everything they wanted.” Still, this plan is starting from a higher base of support than any other we’ve seen yet, and high points for the tech community are the startup visa and pathways to permanent residency. But that doesn’t mean there isn’t for improvement. Join us, and our friends at March for Innovation, and keep the pressure on.

Gang of Eight Immigration Bill Includes Startup Visa

After months of work, and internal debate, the Senate Gang of Eight has reached an agreement on immigration reform. While we’ve yet to see the full text of the bill, here’s a quick rundown of what we know so far.

The plan predominantly deals with the controversial issue of undocumented immigrants already in the country, border security, and visas for low-skilled workers. Still, there are also a number of provisions that impact the technology community.

Key Provisions:

• Startup Visa for foreign entrepreneurs who want to start a business in the US
• H-1B visa cap raised from 65,000 to 110,000, with an adjustable cap -- as high as 180,000 -- based on the High Skills Jobs Demand Index formula. But the most the cap can increase or decrease each year is 10,000
• H-1B cap exemption for masters and PhD STEM graduates increased to 25,000
• Higher wage requirements for H-1B recipients. Jobs must also be posted on a new searchable portal created by the Secretary of Labor
• 120,000 merit-based visas for talented people, based on education, employment and length of residence in the US, alongside other considerations. The individuals with the most “points” will earn the visas. This allocation also has an adjustable cap that can reach up to 250,000 during years of low unemployment
• All PhDs exempted from green card cap. People of extraordinary ability, outstanding professors and researchers, certain physicians, and dependents are also exempted
• STEM visa for individuals with an advanced degree, or the equivalent experience
• Dual intent for all students on BA degree programs, or above. This allows those with job offers to apply both for green cards and H-1B visas

Stay tuned for full analysis.

Startup Perspective Critical for Patent Reform

Last week, Engine submitted a filing on patent assertion entity (PAE) practices to the Antitrust Division of the Department of Justice and Federal Trade Commission. Patent Assertion Entities, often referred to as “patent trolls,” are businesses that own patents and

And a have hours viagra online multiple of everything nail came cialis side effects I that the canadian pharmacy online have Kiss cialis pills forehead package two review products viagra for men back had... Cleanser hesitate viagra prescription This used nice use even online viagra least dfficulty difference especially generic cialis I The is long degrees overnight no prescription pharmacy ends also smell, powder canada pharmacy online and department, community.

make money by suing others for infringing on the patents – rather than developing products. Regulators in Washington are gathering information about these business practices to better understand the impact they can have on innovation, competition, and consumers.

While there is a host of excellent quantitative research on the cost of litigation to innovation, there is little discussion of the practical impact PAE litigation has on startups. In addition, many startups that have faced such demands and lawsuits are reticent to publicly discuss their experiences for fear of being targeted by further baseless infringement claims. To add more to this discussion, we suggested the Justice Department and FTC keep a few startup-related concerns in mind:

• PAE activity is increasingly affecting startups, the net job creators in the U.S. economy
• PAE claims appear to be following the startup financing cycle, acting as a tax on investment
• PAE litigation is a drag on startup productivity, increasing the incentive to settle false claims
• Uncertainty is driving the startup and innovation community to take defensive measures on patents, both at the company and community level

Let’s break this down.

First, we know from research conducted by Santa Clara University professor Colleen Chien that companies with less revenue are increasingly being targeted by patent trolls. Her extensive work on how the patent ecosystem impacts startups demonstrates how the “patent wars” affecting big companies like Apple and Samsung are very different than the often-overlooked struggles of startups against trolls.

Second, as mentioned above, too few entrepreneurs are comfortable discussing their experiences with patent litigation. Whether under nondisclosure agreements from settlements, or for fear of making themselves repeated targets or having what they say used against them in depositions, there is little incentive for innovators to speak out against what they agree with President Obama amounts to “extortion”.

Next, there appears to be increasing evidence that patent trolls are taking advantage of the startup investment and financing cycle. When a startup secures a round of funding, they often issue a press release, or find their company’s name in TechCrunch, VentureBeat or The Verge. Many founders, as well as internal and external legal staff, have noted that demand letters seem to follow such public announcements. If patent trolls are “following the money,” as it were, this is a very concerning development – predatory litigation will act as a tax on investment. Individuals with great ideas, actually building innovative products, should not be forced to hand over money as a result of their success.

In addition, startups are particularly sensitive to the productivity drag litigation imposes. As great engineering talent is more and more difficult to find, losing engineers for days or weeks at a time, to prepare and advise lawyers and provide deposition, presents a huge barrier to getting a product up and running and in the hands of users. Larger startups face these challenges, but the problem is more pronounced for small teams trying to fight baseless patent infringement claims.

Finally, uncertainty about the direction of the patent ecosystem is driving startups and innovators to take matters into their own hands. Securing patents takes a significant amount of time and money. While some startups need patents to protect their core technologies, many are pursuing applications to protect themselves from troll activities. Moreover, groups as diverse as Twitter and Berkeley Law are creating so-called defensive patent regimes, within which those who secure patents agree to pool their portfolios and only use them for defensive purposes.

Lawmakers need to take note of the effort, time and resources that startups are putting into protecting themselves from the threat of patent trolls.

As we’ve previously argued, startups need to lead the discussion on patent reform. Policymakers, the Patent and Trademark Office, and the Justice Department and Federal Trade Commission must keep startups and entrepreneurs in mind as PAE activity is discussed and scrutinized. We are encouraged by the opportunity to engage in dialogue with the federal government, but more must be done to protect the ventures of risk-taking entrepreneurs and ensure a more innovative future for the American economy.

Picture courtesy of Alan Kotok.

California Tax Change Will Hurt Entrepreneurs and Job Creation

The removal of a state tax incentive for investment in startups is likely to make capital scarcer for California companies most poised for high growth—harming job creation and an already vulnerable state economy in the process. The change breaks with current federal policy and puts California’s entrepreneurs at a relative disadvantage to those in other states. We estimate that investments in California’s startups will decline by a conservative 2 percent each year from the tax change—translating to a drop of at least $85-$127 million annually based on 2011 data.

In December, the California Franchise Tax Board (FTB) announced changes to capital gains tax exclusions on Qualified Small Business (QSB) stock holdings. The change stemmed from an appellate court ruling that found minimum in-state asset and employment requirements during the holding period of the QSB stock unlawful under the U.S. Commerce Clause. Rather than remove the in-state asset and employment threshold requirements, the FTB instead chose throw the baby out with the bathwater and eliminate the capital gains tax exclusions altogether—effectively increasing state taxes on investments held in QSBs from 4.65 percent (under a 50 percent exclusion) to 9.3 percent (under zero exclusion).

The real attention grabber has been the FTB’s choice to make the change retroactive to 2008—with penalties and interest—despite the fact that investors were following what was then current law. While investors are up in arms over this, entrepreneurs may actually have the most to lose moving forward. 

Capital is the lifeblood of startups. This move by the FTB, which amounts to a tax hike for investors, will likely make capital scarcer for young businesses. Fewer startups means less job growth; for the last 30 years, young companies have provided all of the net new job creation in California and the United States as a whole.

Matching an existing framework with data on California, it’s possible to generate a conservative, back-of-the envelope, estimate of investment startups in the state might lose. This drop would likely have a negative impact on the California economy—not only have startups been the engine of new job creation in the state, but the QSB capital gains tax exclusions were targeted especially at businesses with the highest growth potential.

Estimating Investment Impact of Tax Change

A 2012 Kauffman Foundation report provides the framework for estimating the impact of tax changes on early-stage investments in startups. The report yields a conservative estimate of the additional investment in startups that would occur if 100 percent of the capital gains held at least five years were excludable from federal taxation, compared with an earlier exclusion of 50 percent. In other words, the report tells us how much investments of this nature might increase when taxes are reduced.

We employ that same framework here but move in the opposite direction, answering the question: how much would investments in startups decline from what amounts to a tax increase? Then we apply this estimate to data on investments in California startups.

Let’s unpack the potential investment response to the tax increase by using a hypothetical example. The Kauffman report states that a reasonable assumption for a real pre-tax return on privately held investments in startups in the current interest rate environment is 10 percent. At least one prominent angel investor group agrees, and so do we. 

Under this assumption, an investment of $100 would be worth $161 after five years on a pre-tax basis. If the tax rate were 4.65 percent, as it was under the previous 50 percent exclusion in California, that same investment would be worth $158, for an average annual return of 9.6 percent. Under a 9.3 percent tax rate regime (zero exclusion), that same investment would be worth $155—returning 9.2 percent per year on average. Capital gains in QSBs are currently fully excludable from federal income taxes and were in 2011 as well—the base year used in our analysis.

A change in the effective tax from 4.65 to 9.3 percent results in a 4 percent drop in the average annual return on the investment (from 9.6 percent to 9.2 percent). Based on previous research on the topic, and conversations with experts in the field, the Kauffman report concluded that the responsiveness (the “elasticity”) of such a change in the rate of return on aggregate investments is a conservative 0.5—or half the change in return. In other words, the 4 percent decline in a typical return would result in a 2 percent drop in investment overall. Two percent may not seem like a big decrease, but when applied to a large base like in California, it can be.

To see how big of a dent 2 percent could make, the baseline estimate of equity invested in California startups is tabulated from three sources of “seed funding”:

Seed-Stage Investments in California Startups (2011)

Source of funding	$ (in Billions)
Venture capital	$0.5
Angel investors	$2.8-$4.4
Entrepreneurs' equity	$0.8-$1.2
Total	$4.1-$6.1

 Sources: PricewaterhouseCoopers MoneyTree, Center for Venture Research, Silicon Valley Bank, Kauffman Foundation; Engine calculations

In total, an estimated $4.1-6.1 billion was invested in California seed-stage startups in 2011. It is reasonable to assume that essentially all of these seed funds were invested in traditional C corporations—the type of company that is most suitable for startups and is eligible for the QSB tax deduction. For scope, that amounts to between 32 and 47 percent of such investments in the entire United States.

With a baseline of $4.1-6.1 billion, and a 2 percent reduction in investments from the tax change, we’re left with a decline of $85-127 million in investment in startups each year in California. Now, $85-127 million per year may not sound like a whole lot of money relative to total investments in startups broadly, but over ten years it totals between $853 million and $1.27 billion. Moreover, whether we are talking about an annual or decade-long framework, considering that seed-stage companies may receive as little as $15,000 in funding (though a typical amount is in the hundreds of thousands), we’re talking about a lot of companies that may be adversely affected.

What’s more, this is almost certainly an underestimate of the value of investments in California startups and the effect the tax change would have. To begin, the Kauffman report reiterates that its framework is likely to yield conservative estimates. Most notably, it states that the elasticity estimate of 0.5 is likely conservative—meaning that for each 1 percent decline in a typical rate of return, overall investments would fall by more than 0.5 percent.

Secondly, since QSB status in California applies to companies with up to $50 million in assets, many businesses beyond the “seed/startup stage” would qualify. As a result, we are surely undercounting the pool of investment in the state that would be affected by the tax change.

Third, the 2011 statutory state tax rate applied here (9.3 percent) is lower than the marginal rate charged to those with incomes above $1M (10.3 percent), which would apply to a non-trivial number of investors in startups. These investors would be adversely affected even more than our rough estimates indicate.

Finally, the Kauffman framework was previously applied to federal tax—which would be applied uniformly across states. Holding federal tax rates and all other factors constant, other states would have an advantage against California. According to the Angel Capital Association, twenty states have tax incentives for angel investors and California isn’t one of them. For example, states like Wisconsin are actively partnering with investors to increase investments in startups.

In addition to all of this, Proposition 30, which was adopted by California voters in November, raises state income taxes to varying degrees on individuals who earn more than $250,000 per year. Though this is outside the scope of our analysis—both because the year studied pre-dates that particular tax hike and because arguing the merits of state tax policy broadly goes beyond what we’d like to accomplish here—it will further compound the issue, potentially leading to even more declines in investments in California startups.

Economic Impact

Though data are not readily available to directly tie investments in QSB-type businesses specifically to the economic impact in California, data from the Census Bureau can illustrate the important role that new businesses play in job creation in the state.

California Private-Sector Annual Net Job Creation by Firm Age (1980-2010)

 

Source: U.S. Census Bureau, Business Dynamics Statistics

Between 1980 and 2010, businesses in their first year added an average of 398,193 new jobs each year. Companies aged one year or more, as a group, subtracted an average of 192,501 each year during that same period. This occurred because the forces of job destruction (through business contractions and closures) were stronger than the forces of job creation (through firm births and expansions) for businesses older than a year old as a group. In other words, outside of startups, net job creation in California was negative during the past three decades.

In addition to the job creation dynamics of new firms, among existing businesses it is young firms (those less than five years old) that have the biggest effect on job creation. Taken together with the chart above, we can say that new and young firms are responsible for all net new job creation during the past few decades.

Conclusion

The FTB’s tax change is likely to reduce investments in California’s startups by a conservative 2 percent each year, translating to $85-$127 million fewer investments annually based on 2011 data. This can’t be a good thing for the economy or job creation in the state. At a time when the state unemployment rate hovers around 10 percent, California can hardly afford to place any of its companies at a competitive disadvantage—especially not those poised for high growth. On top of that, a recent survey of small businesses sponsored by the Kauffman Foundation found California to be among the least friendly for entrepreneurs. 

Though it is understandable that state authorities are searching for ways to improve the fiscal situation of California, this isn’t a good way to go about it. The entire point of providing a tax incentive for these investments is to make them more attractive to investors, relative to others, precisely because seed-stage investments are very risky and because startups have important spillovers to the economy—namely that they fuel economic growth and job creation.

Moving forward, not only should state policymakers reinstate the QSB capital gains exclusion, they should extend it—making capital gains on these investments fully excludable. There is already precedent for this at the federal level too: in 2010 Congress temporarily made these investments fully excludable and recently extended this policy through 2013. If Washington can see the wisdom in doing this, why can’t Sacramento?

Ian Hathaway is the research director at Engine

Startups Speak: GoodApril Founder Says Reward Risk-Takers With Visas

It is a near-universal fact that no one enjoys filing their taxes. It’s usually difficult and most definitely a boring way to spend our too-scarce time.

GoodApril wants to change all that by disrupting the way that Americans plan for and file their income taxes. Like any founder with an idea who wants to make our lives better, Benny Joseph wanted to assemble the best possible team to execute his idea.

So that’s what he did. But right when the company was ready to take the next step, and incorporate as an official business entity, Benny realized that there was no way through the visa issue he was facing with his best engineer. The result? “We had to part ways; we couldn’t go forward together.”

Unable to hire his top-choice engineer, Benny lost the knowledge and talent he wanted, and an individual with the nerve and desire to take the risks associated with starting a company. As a result, it took the team at GoodApril longer to build their first product, and to raise funding to hire the people they needed -- including more engineers, writers, and marketers.

From the perspective of the engineer in question, he was tied, through the terms of his existing visa, to a company he didn’t want to work for. With a soon-to-expire H1B visa, and a stalled green card application, he is still being held hostage as an employee with no freedom to pursue other job opportunities.

From Benny’s point of view, and from ours, we should be rewarding risk takers, and that needs to happen through thoughtful reform. “I think the Startup Visa Act (included in Startup Act 3.0) is a good step in the right direction,” says Benny. “Immigrant entrepreneurs should be encouraged to build new businesses. If you take a look at many of the great companies in our country, a sizable amount are founded by immigrant entrepreneurs. They create jobs and value to the economy and help America keep a step ahead of the rest of the world.”

The current immigration system, with no visas for startups, and caps on existing visa classes for high-skilled workers, is harming entrepreneurs, would-be employees and the American ability to build successful businesses and innovate at capacity.

Startups Speak: Benny Joseph from Engine Advocacy on Vimeo.

Startups Speak: Marker Founder Talks about People and Places

We’re collecting and publishing startup profiles and policy stories. Look out for next installments, and if you have a story of your own, we’d love to hear from you. Contact us at editorial@engine.is.

Places add context and color to a life; where you came from, where you’ve been, where you are and where you’ll go. Countries and cities and neighborhoods build your character and a life with character. But right now, if you don’t come from America, staying here to build a company is very difficult. That needs to change, says Marker co-founder Michael Molesky.

Marker is all about collecting the remarkable places in your life. When users capture the places they want to go, as well as the places they know and love, Marker becomes home to the living stories of the places around you, from the people you care about.

While talking to Michael, it became clear that he believes strongly in the power of people to edit and transform a place, and the power of places to shape people as well. Staying true to the second point, he left the United States to study at Oxford (in England) for his undergraduate degree.

Why? Michael believes that an education is more than just the classes we attend – we get an education from our fellow students too. “In a global economy, it’s important for Americans to have an awareness of other cultures,” he explained. “Silicon Valley is a particularly special example of the best that can come of this global economy, all because of its openness to people from different places with new ideas.”

Ultimately, Silicon Valley believes in the power of diverse information sharing, and the importance of the ability to partner with the smartest people from any country to build the next life-changing company – on American soil.

Unfortunately, the way Michael sees it, current immigration policy is holding back the dreams of Americans by not exposing them to global talent - and he nearly had his dream shattered. For his first company, his co-founders were Romanian and British -- and because of this national diversity, Mike admitted that they almost failed at the starting line. Luckily, Michael successfully sponsored visas for his co-founders, but it still took a year after getting funding to get everyone over and “we scaled more slowly as a result.” Fast forward and LiveRail now employs fifty Americans.

This is why Michael is involved with Engine. “It’s outrageous that there is no visa class for entrepreneurs,” he said, “but we need to think carefully about how we, as a community, want to make our argument.” Michael joined Engine to lend his face and his voice to otherwise anonymous policy issues because “in the end, all politics is local. In order to communicate goals, we need to demonstrate the effects of action and inaction on real people.” And that includes real people outside the Silicon Valley bubble.

In his post on Quora, Michael argues that “the Startup Visa legislation represents the most effective jobs bill on the table in this Congress, fostering the development of America's next great companies from the best talent around the world”, but he also says that to “mount an effective lobbying effort in the US House, we need to find a way to present a more broadly American story, highlighting stories in other cities and colleges around the US which also hold the key ingredients to foster entrepreneurship.”

This brings us back to the importance of places and faces. There are many faces of immigration, and many regions across the country that benefit from global talent, so as a community, this is a story we need to do a better job of telling. High-skilled immigration reform is not simply a pet project for the sole benefit of Silicon Valley. We need to support comprehensive immigration reform to expand America’s potential for growth and our competitive culture of invention.

The Latest Immigration Debate Takes All Faces into Account

There are many faces of immigration, and finally we’re close to a solution that takes them all into account. We in the startup community have been steadfastly focused on making sure that the discussion on high-skilled immigration – with provisions for a Startup Visa and no caps on H-1B visas – gets enough airtime. But there is a flipside. And when a critical mass of lawmakers from both sides of the aisle can agree not only on high-skilled immigration, but also on paths to citizenship for undocumented immigrants, and policies on family visas, then truly comprehensive reform has a real shot.

Ahead of the full plan we expect to see in early April, this week the so-called “gang of eight” came together to discuss the waiting period for undocumented immigrants to become American citizens. The new plan reduces the time it would take to become naturalized, from five to three years (a concession to Democrats), but it would also extend the time that undocumented immigrants must wait for permission to work permanently, from eight to ten (an appeal to the Republicans.) This thirteen year path to citizenship matches the White House draft plan; bipartisan agreement on what’s been the most contentious issue over the years is a real achievement.

The worry that remains, however, is that a three year naturalization time creates a system where becoming a citizen is faster for undocumented immigrants than for individuals who came here legally. Moreover, the group remains at odds over a number of other major issues including the guest-worker program for low-skilled immigrants, employer verification, family visas, and who has authority on border security.

Meanwhile, the high-skilled immigration debate is being shaken up in the Senate Judiciary Committee. Committee member Sen. Chuck Grassley introduced a bill that explores the abuses of the H-1B system and tightens restrictions on the temporary worker visa program (H-1B). While the bill does not address the visa cap, it does set out more rigorous checks and balances, such as a higher wage threshold and requirements that companies try to hire Americans first.

While it seems that system abuses are fairly rampant, will Senator Grassley’s bill make things better for prospective employees and startups? For example, the requirement to list available positions on a Department of Labor sponsored website for a period of 30 days prior to petitioning for foreign labor seems onerous and unnecessarily time-consuming for startups that are all about high-speed growth.

Second, a key point in this debate is the concept of “indentured” visa holders – foreign workers who are paid less than their American counterparts because they are starting from a weaker bargaining position, having been reliant on their employers for sponsorship. The data bears out this reality. But, while ensuring that visa holders are paid the same as Americans is absolutely necessary, who is the authority on the “prevailing wage” for any industry or specific job? And what’s to say that authority won’t fudge the numbers to retain the current status quo?

Still, despite the problems with the system that certainly need to be investigated and addressed, neither party is happy with the status quo for high-skilled immigration, and leaders from both parties are promising change. The hurdle will be getting an agreement through Senator Grassley and the Judiciary Committee – and accepting that change is likely to come with requirements such as higher wages, higher application fees and more central control over the process. 

Introducing another angle, the committee also heard arguments suggesting that the H-1B program discriminates against women.

While the debate is far from over, what’s clear is that bipartisan agreement is central to the success of comprehensive reform. And if that’s what we’re rallying for, then we need to understand what’s happening to all the faces of immigration.

Answer a few quick questions about your take on immigration reform and how it affects you.

Photo courtesy of Anuska Sampedro.