Percentage of Immigrant-Founded High-Tech Startups Declining, Study Finds

Don Tennant

A new study on immigrant entrepreneurship has found that the proportion of immigrant-founded high-tech startups in the United States has stagnated, and that it’s starting to decline.

The study, released on Tuesday by the Ewing Marion Kauffman Foundation, a nonpartisan foundation that supports entrepreneurship and innovation, evaluated the rate of immigrant entrepreneurship from 2006 to 2012. According to Dane Stangler, director of research and policy at the Kauffman Foundation, “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.”

The study examined a random sampling of 1,882 engineering and technology companies founded since 2006. Of those companies, 456 had at least one foreign-born founder. Here are some of the highlights:

  • 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.
  • The exceptions to the downward trend were immigrants from India. Although founders in the study hailed from more than 60 countries, 33.2 percent of them were Indian, up from about 7 percent in 2005. Indians 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.
  • Immigrant-founded firms were most likely to be located 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.

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Oct 3, 2012 8:11 PM R. Lawson R. Lawson  says:
If the majority of our skilled visa programs were not centered around employer sponsorship, immigrants would contribute far more in terms of start-ups. I think it is silly to suggest that immigration policy is the cause of this, which has changed very little for high skilled immigration - between 2006 and 2012. The economy tanked during those years so that is obviously going to have the greatest impact on start-ups. Greater numbers of Indian and Chinese startups are expected because they get the lion's share of the visas. I find little in this study to be earth shattering or to reveal something most of us didn't already suspect. The only thing I found surprising is how dismal sales were from these companies: "Immigrant founders . . . employed about 560,000 workers and generated an estimated $63 billion in sales from 2006" On average sales were 9,000,000,000 each of those years. Divide that money across 560k workers and it comes to $16k a year. Revenues seem very low. My math is obviously not entirely accurate - need more data - but it should be ballpark. I'd like to know the quality of jobs being produced in terms of salaries. Reply
Oct 4, 2012 4:06 AM BT1024 BT1024  says:
So, wadhwa's new book was drawn from the Kauffman report and released at the same time.... http://wadhwa.com/: "In an alarming new book, THE IMMIGRANT EXODUS: Why America Is Losing the Global Race to Capture Entrepreneurial Talent (Wharton Digital Press; October 2, 2012) drawn from a Kauffman Foundation report released simultaneously, Vivek Wadhwa, a leading scholar and public voice on entrepreneurship and public policy..." Also, out of curiosity, how many immigrants did it take, from a particular country, to produce 1 entrepreneur. For example, from 2006 to 2012, how many indian immigrants did it take for them to reach a rate of 33.2 percent of all entrepreneurs (from all countries)? - AND, of the 33.2 percent indian entrepreneurs, how many of them immigrated during that time frame? Reply
Oct 4, 2012 3:10 PM L.K. Bal L.K. Bal  says: in response to R. Lawson
Roy- When you are dividing sales with number of years 7 (2006-2012), what made you consider 560k workers per year? to get the correct figure you should use 80k worker per year which sounds more realistic compared to 560k in an year! Reply
Oct 4, 2012 9:06 PM R. Lawson R. Lawson  says: in response to L.K. Bal
L.K, we don't have enough information to solve that math equation. I was taking a (knowingly wrong) stab at it to get some sort of ball park. Also, I assume all those workers weren't on the job day one. What I did to arrive at the number was to assume that over 7 years we had an average of 80k - the number you arrived at. And if you average one side of the equation you've got to do the same to the other side. So 9,000,000,000. 9,000,000,000 / 80k = $112,500. DOH! Good catch. That number looks closer. But remember, that could also be wildly off. We really need the annualized data to make sense of it all. Also, don't assume that is the salary each person gets. You would have to deduct operating expenses, executive pay, dividends, etc. So given the data the provided, we can't draw very many conclusions other than what it says at face value. As a percent of GDP this is really not a significant contribution, but it is still interesting data. Reply
Oct 5, 2012 3:11 AM BT1024 BT1024  says:
It would be interesting to know what percentage of the immigrant founders from the studied "startups", were women... I'm going to guess that it's a very small percentage. But, I would not say that women don't have an entrepreneurial spirit. I would expect them to be on par with men.... Back to my other curiosity, how many immigrants does it take before you get 1 that becomes an entrepreneur ? Reply
Oct 5, 2012 3:17 AM BT1024 BT1024  says:
Take a look at Professor Norm Matloff's analysis of a 2011 report that states the following: "76% of patents awarded to the top 10 patent-producing American universities had at least one foreign-born inventor"... Here's the link: http://heather.cs.ucdavis.edu/Archive/PatentStudy.txt Reply
Oct 5, 2012 4:23 PM Wakjob Wakjob  says:
Of course they're declining. Banks and VCs are no longer lending because 14 years of throwing hundreds of billions at these people has produced EXACTLY NOTHING. Time to put Americans back to work, folks. Reply
Oct 5, 2012 5:38 PM BT1024 BT1024  says:
Nowhere in the article or the video referenced below (links for below), did I come across any whining about a lack of immigrants as the cause of the decline in the number of new startups or the decline of new jobs created by startups. Article "When Job-Creation Engines Stop at Just One" (Entrepreneurs Starting Up With Fewer Employees): http://www.nytimes.com/2012/10/05/business/entrepreneurs-starting-up-with-fewer-employees.html?pagewanted=1&_r=0 Definitely watch this companion NYTimes video: http://nyti.ms/QMMclw Reply

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