Photographer: Patrick T. Fallon/Bloomberg

How Tech Startup Founders Are Hacking Immigration

Forty-four percent of Silicon Valley startups have an immigrant founder. Many tell horror stories.

Standing under fluorescent lights at a San Francisco hospital, employees of Medisas Inc. were celebrating the debut of their medical records software. It was the product of two years of planning, coding, and countless meetings with hospital administrators, all driven by Gautam Sivakumar, the startup’s founder and chief executive officer. But Sivakumar spent that day at a computer in his childhood bedroom in England.

Illustration by Nejc Prah for Blomberg Businessweek

His face appeared on an iPad via video chat as colleagues toted him around the hospital “like a baby,” he recalled. “I’d say, ‘I need to talk to that person. Can you take me over there?’” The awkward arrangement was a byproduct of an all-too common phenomenon among U.S. tech startups: immigration limbo.

When it comes to starting businesses, immigrants do more than their fair share. While 13 percent of the U.S. population is foreign-born, 24 percent of tech and engineering companies created between 2006 and 2012 had an immigrant founder, according to the Kauffman Foundation, a researcher that advocates for entrepreneurs. In Silicon Valley, the figure was 44 percent. Among those founders are WhatsApp CEO Jan Koum and Instagram’s technical lead, Mike Krieger. Kunal Bahl returned home to India to build e-commerce company Snapdeal after failing to secure a U.S. visa upon graduating from Wharton. Snapdeal was valued at $5 billion by investors last year and employs more than 4,000 people.

There is no visa specifically designed for foreigners who start companies in the U.S. A six-year effort to create one died in Congress last year. Legislation won’t have a chance at passing until at least 2017 and more likely not until 2022, said Craig Montuori, an advocate for reform who estimates that hundreds of founders in the U.S. are struggling to get federal work authorization. “We got a lot of support on Capitol Hill and very little opposition, but few people were willing to make it a priority,” he said.

In Washington, most of the debate around tech visas centers on H-1Bs, typically used by big companies and research universities. Lobbying groups such as Mark Zuckerberg’s FWD.us say more H-1B visas would keep U.S. companies from losing out on top talent. Protectionist legislators and Republican front-runner Donald Trump say they depress wages and take jobs away from Americans. Either way, H-1Bs aren’t a practical option for startups because they’re tough to get and meant for employees, not founders.

Facebook CEO Mark Zuckerberg helped start FWD.us, a lobbying group for immigrants in technology.
Facebook CEO Mark Zuckerberg helped start FWD.us, a lobbying group for immigrants in technology.
Photographer: David Paul Morris/Bloomberg

Sivakumar, like many startup founders, applied for an extraordinary ability work permit, also known as a “rock star” visa because of its use by famous musicians. (Justin Bieber has one.) In 2013, after a three-month stint with the business incubator Y Combinator, Sivakumar incorporated Medisas in the U.S., met with investors, and began recruiting while hopping back and forth from the U.K. Once he had applied for a visa, attorneys advised him not to return to the U.S. until it was approved to avoid agitating officials. For nine months, Sivakumar lived with his parents in England and kept California hours, sleeping during the day and working through the night with a webcam pointed at his face. He hoped his virtual presence would help his staff of three feel less abandoned. “We were trying to negotiate six-figure deals over an iPad screen,” he said. “I didn’t see the sun for four or five months.”

As is often the case when the government is resistant to change, the tech industry has been taking matters into its own hands. Montuori started the Global Entrepreneur in Residence Coalition, which works with the University of Massachusetts at Boston and the University of Colorado at Boulder to wrangle the schools’ H-1Bs for would-be founders. Unlike companies, which enter a lottery for a limited number of H-1B spots each year, colleges can apply for as many as they want. The group said it has secured about 10 for startup founders so far.

Unshackled, a $4.5 million venture fund, has taken a more radical approach. The fund helps immigrant entrepreneurs secure H-1B visas in exchange for 5 percent of their companies. It also offers those founders a convertible loan of as much as $160,000. So far, Unshackled has doled out a dozen visas. “The same way a developer looks at a code base and comes up with the best product solution, we’re going to look at the legal code base and come up with the best way to support immigrant entrepreneurs,” said founding partner Manan Mehta. Bloomberg Beta, the venture capital arm of Bloomberg LP, is an investor in Unshackled.

The legality of Mehta’s immigration hack is questionable, said Peter Roberts, an immigration lawyer who works with Y Combinator. H-1B workers are only supposed to be paid by a single employer, and stock in the founder’s own startup could be considered a second source of compensation. “It’s a legal gray area,” he said. Mehta said Unshackled founders’ equity in their companies doesn’t start vesting until later to avoid running afoul of this rule.

Sharon Rummery, a spokeswoman for U.S. Citizenship and Immigration Services, referred questions about the programs to a statement saying visa applicants should consult the application forms. Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa), who introduced a bill in November that would limit visas, said H-1Bs weren’t intended for entrepreneurs and that such uses undermine the visa’s purpose. “The original intent of the program is good,” Grassley wrote in an e-mail. “But the abuse of the system is real.”

Australia, Canada, Chile, and other countries aspiring to create the next tech hub are trying to capitalize on the U.S.’s foot-dragging. They’re appealing to entrepreneurs with special visas and tax breaks, though the programs lack the allure of Silicon Valley. “The U.S. is where these founders really want to be: The market is bigger; the VCs are here,” said Tahmina Watson, an immigration attorney. “They want to be here, yet our laws are not changing.”

Postmates CEO Bastian Lehmann.
Postmates CEO Bastian Lehmann.
Photographer: David Paul Morris/Bloomberg

For now, some founders have remained in the U.S. on tourist or business tourist visas, which forbid working or earning money while in the country. Deferring compensation is doable, but what constitutes work isn’t well-defined. “Is talking to investors work?” said Bastian Lehmann, CEO and co-founder of the San Francisco courier startup Postmates Inc. “If it is, you’re not supposed to do it. But it’s not a rule. It’s in the opinion of the border guard that you happen to talk to.”

Lehmann, who’s a British citizen, spent Postmates’s first year ducking in and out of the U.S. on a tourist visa. He was always fearful of crossing a line that could get him banned. Eventually, he secured a visa tied to his job, but that presented new problems. “As CEO, you want to build a large company. But every nine months, you have to get your visa renewed, and suddenly the company is 80 or 90 people, and you’re like, ‘S---, I hope nothing goes wrong with this extension,’” said Lehmann, whose business now has about 240 employees. “The higher the stakes on what you’re building, the weirder that feeling becomes.”

Applying for a visa takes at least six months of work and can cost $10,000 or more in legal fees and other expenses. It also takes a mental toll. “When you talk to other people in San Francisco, you don’t want to talk about these visa issues that make you cry every day,” said Aurora Chisté, an Italian entrepreneur who spent a year and a half trying to build up her company in the U.S. while visa delays kept her out. “You know that every day is a day they could kick you out of the country, but you hide those things because you know it could affect business.”

It could indeed, said Jeff Bussgang, a general partner at Flybridge Capital Partners. “VCs don't want to invest in entrepreneurs who are at risk of being sent away,” said Bussgang, who has been involved in efforts to establish a founder visa. “It’s a huge distraction.” In Riga, Latvia, Browserling Inc. co-founder Peteris Krumins has been waiting for six years to get his business tourist visa renewed. His U.S. co-founder has moved on from the app-testing venture. “Our partnership fell apart,” Krumins said.

Sivakumar’s story has a happier ending. In July 2014 he got his rock star visa to work for Medisas and no longer has the threat of deportation looming over his head. Still, he can’t help but wonder what might have been. Medisas has 20 employees, instead of the 60 or 70 he said it could have had without his year of delays. “We were in hibernation mode,” Sivakumar said, “until this was resolved.”

(A previous version of this story was corrected to show Unshackled’s convertible loans are in addition to the 5 percent of equity it takes in startups.)