Ensuring foreign-born founders can grow their startups in the U.S.

By Bobby Franklin

ost venture capitalists can recount examples of immigrant entrepreneurs who have built great companies that delivered jobs and outstanding products and services to the American public.

Those same VCs can also recount examples of immigrant entrepreneurs who have been distracted, frustrated, and burdened by our antiquated immigration system that prevents foreign-born entrepreneurs from staying in the country to build their companies.  Immigrant entrepreneurs have enhanced our economy and culture despite immigration law, rather than because of it — that has to change if we are going to grow our economy as President Trump hopes.

The stats on immigrant entrepreneurship and its contribution to our economy are truly staggering.  Our research has found that fully one-third of U.S. venture-backed companies that went public between 2006 and 2012 had at least one immigrant founder.

A recent study found that immigrants have started more than half of America’s ‘unicorns’, or privately held companies valued at more than $1 billion.  Another examination determined that while immigrants constitute 15% of the general U.S. workforce, they account for 25% of U.S. entrepreneurs and that 31% of founders at VC-backed startups are immigrants.

Knowing of the significant contributions foreign-born founders have made to the entrepreneurial ecosystem and the broader U.S. economy, NVCA has long championed the creation of a Startup Visa for talented immigrant entrepreneurs to remain in the U.S. if they can demonstrate their enterprise is viable and has appropriate funding.

The idea has achieved bipartisan support, in part, because it was immigrant entrepreneurs who founded iconic American brands like eBay, Intel, and Tesla, to name just a few. Rightfully so, policymakers want more of these blockbusters in our country. Against that backdrop, we continue to educate policymakers on the win-win nature of a Startup Visa given the entrepreneurial spirit of so many immigrants and our need for greater economic growth.

Unfortunately, passage of a Startup Visa has been mired in legislative limbo, tied to passage of comprehensive immigration reform—and congressional inaction in that space is well known. Fortunately, there is a way to unleash dynamic economic growth through immigrant entrepreneurship absent congressional action. We just need the Trump Administration to allow for it to go into effect.

During the Obama Administration, the Department of Homeland Security finalized what is called the International Entrepreneur Rule. Under the rule, the federal government would use its discretionary “parole” authority to allow talented immigrant entrepreneurs to remain in the U.S. for two and a half years to build and scale their startup, with a possible extension of another two and a half years.

To qualify, the entrepreneur must have founded a U.S. startup with substantial potential for rapid growth and job creation; the entrepreneur must be well-positioned to advance the startup, such as through significant equity ownership; and the startup must have received substantial capital investment from an investor with a track record of success.  It’s not easy to qualify under the International Entrepreneur Rule, but if a founder does then our country and its citizens stand to benefit from something truly special.

The International Entrepreneur Rule is slated to go into effect on July 17thNVCA worked collaboratively with the Obama Administration to craft the final rule and since President Trump took office in January we have been proactively engaging with his administration to advocate for the rule and the benefits it would produce for our country.

We have already been joined by investors and startup founders in 25 states with emerging entrepreneurial ecosystems that recently wrote to President Trump to encourage him to retain the rule.  As the effective date of the rule approaches, we will continue these conversations but encourage other voices from the entrepreneurial ecosystem to join the chorus.

President Trump has said repeatedly that it is his priority to spread economic prosperity across the country.  There is no better way to do that than through more entrepreneurial activity, of which immigrant founders play a central role.

The International Entrepreneur Rule will unleash pent up entrepreneurial activity across the country and bring high-quality jobs to our communities.  Join us in encouraging President Trump to allow it to go forward so that top talent from around the globe can come to the U.S. to grow dynamic young companies of tomorrow.

Finally, legislation to support startups

By Bobby Franklin

On any given day in our nation’s capital, you’ll find many lawmakers touting the benefits of entrepreneurship.  Unfortunately, this enthusiasm is all too often forgotten when it comes to our nation’s tax policy, which often either ignores or is outright hostile towards startups.

That is why when legislation does gain traction to massage the tax code to the benefit of startups and their employees, it’s worth cheering from the hilltops.  As I write, there is legislation quietly making its way through Congress that could take a very productive step towards creating a tax code that supports entrepreneurship. (more…)

Venture capitalists take the hill to discuss policy

By Bobby Franklin

The growth of the modern venture capital industry can be traced back to the 1970s, when several significant policy changes encouraged long-term risk investment in startups.

These policy changes included reductions in capital gains rates and relaxed standards on where corporate pension funds could invest, allowing them to participate in a wider range of asset classes, including the nascent venture capital industry.

These simple but critical changes in policy made 1978 the first year the venture industry saw a significant fundraising period, raising $750 million to invest in innovative startup companies and beginning the rise of venture capital in the United States. (more…)

Trump and Clinton should rethink this part of their tax plans

By Bobby Franklin and Venky Ganesan

The political hysteria surrounding the small but complex issue of the tax treatment of carried interest reached new heights this past week as both Donald Trump and Hillary Clinton called for its demise.

Carried interest allows managers of some private investment funds (such as hedge funds, private equity and venture capital) to pay a lower rate on profits from investment gains than most individuals do on ordinary income.

While many different factors have converged over time to create America’s leadership in innovation, significant credit is due to our long-standing tax policy that supports the spirit of entrepreneurship. It’s alarming that each candidate would be so quick to throw something that motivates investors to pour money into start-ups onto the garbage heap. Given their populist-driven rhetoric to increase taxes on start-up investment, it seems appropriate to set the record straight and explain its fundamental role in the American entrepreneurial ecosystem. (more…)

Here’s how to make QSBS work for the entrepreneurial ecosystem

By Sam Cohen, Tim Curt and Sandy Grippo

Many participants in the venture capital industry are familiar with Section 1202 of the tax code, which contains the Qualified Small Business Stock rules. These rules can provide a valuable exemption from capital-gains taxes for patient investment in early-stage startups. In addition to encouraging direct investment in startup companies, the provision also has the potential to be a powerful incentive to directly encourage entrepreneurial activity because it applies to founder’s stock. But despite its valuable appearance on paper, QSBS is dramatically underutilized in the entrepreneurial ecosystem. (more…)

Revisiting my vision for the NVCA

By Bobby Franklin

When I took the helm of NVCA in September 2013, I accepted the position not as a venture-capital expert but as someone who knew how to get things done in Washington. To get up to speed on this dynamic industry, I took to the road to meet with and learn from as many venture experts as possible.

Through my travels, I learned that the venture-capital industry is part of a complex and intertwined Web of entrepreneurs, investors, innovators, academics, researchers and many others. The inextricable components of this Web make up the entrepreneurial ecosystem, the linchpin of success for our members and for American innovation. (more…)

The true impact of venture capital

By Bobby Franklin

Nearly $60 billion in venture capital was deployed to the U.S. entrepreneurial ecosystem in 2015 to help grow innovative startup companies providing products and services ranging from cyber security technologies to online lending marketplaces to Web-based educational courses and everything in between.

Many of these companies and their predecessors are making great strides in advancing innovation around the globe, but that’s only a small part of the venture capital story and its impact on our lives, our society and our economy. (more…)

NVCA’s role in the presidential sweepstakes

By Bobby Franklin

We are now one month out from that cold winter night when Iowans will caucus for their presidential candidate of choice, setting in motion the cross-country voting marathon that will determine the candidates who will be placed before the American voters next November.  As the race to select our next commander in chief reaches a fevered pitch, it’s important to explain how we view NVCA’s role in the 2016 presidential sweepstakes.

As has always been the case throughout our forty-plus year history, NVCA does not endorse or actively campaign for individual candidates running in the primary or general election for either party.  However, that’s not to say we sit by on the sidelines letting history play out before our eyes without engaging in the most consequential choice our country makes every four years. (more…)

Pro Rata Rights: The Force Awakens

By John Backus

“Creative Destruction,” a term coined by economist Joseph Schumpeter almost 75 years ago, is the fundamental foundation of venture capital, driving financial returns to LPs, wealth creation to entrepreneurs who re-invent industries, and job creation in the global economy.

So what will be the force of Creative Destruction in the industry of venture capital?

A prediction:  2016 is the year that the pro-rata rights ecosystem begins to institutionalize and shakes up our industry. (more…)

Corporate venture: A growing segment of the venture ecosystem

By Bobby Franklin

The modern day venture capital industry has come a long way since the early 1960s when venture legends Bill Draper and Pitch Johnson founded Draper & Johnson Investment Company. No longer are we a cottage industry tinkering around the edges of our economy. Although we remain small in size compared to the broader private equity industry, we play an outsized role in the U.S. economy through company generation, job creation and overall economic growth.

As our industry has grown and matured over the last 50-plus years, so, too, have the markers that define where venture capital starts and where it ends. From the recent rise of crowdfunding platforms and angel investors to growth equity and direct investments from institutional investors, many new and different players have emerged as active and engaged participants in the venture capital ecosystem. (more…)