Immigrant Entrepreneurship Has Stalled for the First Time in Decades, Kauffman Foundation Study Shows

Media Contacts:
Rose Levy, 646-660-8641, rose@goldinsolutions.com, Goldin Solutions
Barbara Pruitt, 816-932-1288, bpruitt@kauffman.org, Kauffman Foundation

New book based on findings warns of potential dire consequences for U.S. economy and urges swift action to reverse the trend

(KANSAS CITY, Mo.), Oct. 2, 2012 — A new Kauffman Foundation study finds that the number of high-tech, immigrant-founded startups — a critical source of fuel for the U.S. economy — has stagnated and is on the verge of decline.

"America's New Immigrant Entrepreneurs: Then and Now" shows that the proportion of immigrant-founded companies nationwide has slipped from 25.3 percent to 24.3 percent since 2005. The drop is even more pronounced in Silicon Valley, where the percentage of immigrant-founded startups declined from 52.4 percent to 43.9 percent.

This report, which evaluated the rate of immigrant entrepreneurship from 2006 to 2012, updates findings from a 2007 study that examined immigrant-founded companies between 1995 and 2005.

"For several years, anecdotal evidence has suggested that an unwelcoming immigration system and environment in the U.S. has created a 'reverse brain drain.' This report confirms it with data," said Dane Stangler, director of Research and Policy at the Kauffman Foundation. "To maintain a dynamic economy, the U.S. needs to embrace immigrant entrepreneurs."

The implications of the research findings, conducted by Vivek Wadhwa, director of research at the Center for Entrepreneurship and Research Commercialization at the Pratt School of Engineering, Duke University; AnnaLee Saxenian, dean and professor at the Berkeley School of Information; and F. Daniel Siciliano, professor of the Practice of Law and faculty director, Rock Center for Corporate Governance; are the subject of a bookbeing released today by Wadhwa.

The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent, draws on the research to show that the United States is in the midst of a historically unprecedented halt in high-growth, immigrant-founded startups.

"The U.S. risks losing a key growth engine just when the economy needs job creators more than ever," said Wadhwa. "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."

With funding from the Kauffman Foundation, Wadhwa has launched a website — ImmigrantExodus.com — as a resource for journalists and a voice for immigrant entrepreneurs.

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 percent of them were Indian, an increase of 7 percent 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 percent), the United Kingdom (6.3 percent), Canada (4.2 percent), Germany (3.9 percent), Israel (3.5 percent), Russia (2.4 percent), Korea (2.2 percent), Australia (2.0 percent) and the Netherlands (2.0 percent).

While immigrant entrepreneurship has stagnated, the rates of Indian and Chinese startups have increased. In 2005, Indians and Chinese entrepreneurs accounted for 26.0 percent and 6.9 percent of immigrant-founded companies, respectively.

The highest percentage of immigrant-founded firms are mostly in traditional immigration gateway states: California (31 percent), Massachusetts (9 percent), Texas (6 percent), Florida (6 percent), New York (5 percent) and New Jersey (5 percent). Indian founders tended to establish businesses in California, New Jersey and Massachusetts, and Chinese founders showed a propensity to start companies in California and Maryland. Except for Germans, who most often chose Ohio as the location for their startups, all immigrant groups displayed a preference for establishing businesses in California.

Immigrant founders, who are most likely to start companies in the innovation/manufacturing-related services (45 percent) and software (22 percent) industries, employed about 560,000 workers and generated an estimated $63 billion in sales from 2006 to 2012, underscoring the continuing importance of high-skilled immigrants to U.S. economic expansion.