Feb 8, 2013 · 7 minutes

Harishankaran Karunanidhi is a cofounder of a hot Silicon Valley startup called HackerRank. The Y Combinator grad presents a coding challenge that pits programmer against programmer in tournament-style competition. The startup has $3 million in backing from Khosla Ventures and, through its Interviewstreet product, has helped companies like Facebook, Amazon, Quora, and Evernote find top engineering talent.

After graduating from Y Combinator in 2011, the company set up its headquarters in Mountain View. But Karunanidhi, a young star programmer from India, never came to the US. Despite graduating from NIT Trichy, one of India’s most prestigious tech universities, and having worked for IBM and set up a company in India, the 25-year-old was rejected for a B-1 business visa. Twice. His co-founder, Vivek Ravisankar, had to establish the company on his own in the US. (Karunanidhi applied for the B-1 visa just to get into the country for the Y Combinator interview – but even that proved a bridge too far.)

Karunanidhi’s story is not isolated one. If you believe the advocates lobbying for a “startup visa,” the problem of the US’s current visa restrictions costing the country top international talent is widespread. It’s even more apparent when it comes to foreign students who are already in the country but can’t stay to start companies once they graduate. Michael Burcham, president of Startup Tennessee, teaches a class about startups at Vanderbilt University’s Owen Graduate School of Management. He says every year he sees “dozens and dozens” of students graduate only to return to their home countries to start businesses that could otherwise be contributing to the US economy.

“It’s a shame because we spend all this money educating these students, and then we ship them back so they can build their business in another country,” he said in an interview after the State of Entrepreneurship Address lunch held in Washington DC on Tuesday. “We pay for their education in our universities, and they take a slot that an American student could have had, yet we won’t allow them to stay after they graduate.”

When it comes to immigration issues, we are now at a critical juncture in American politics. For the first time since President Obama was elected in 2008, comprehensive immigration reform is on the table in Washington DC, and it has bipartisan support. Congressional hearings on immigration reform begin Wednesday. While issues like border security and paths to citizenship for illegal immigrants might dominate the headlines, the proposed reforms also include measures that could permanently affect the tech industry and innovation in the country, not to mention the national economy.

For the time being, it looks like mostly good news for the industry. Proposals from the so-called Gang of Eight senators and the Immigration Innovation Act both indicate that it will likely become easier for foreigners to get H-1B visas for high-skilled immigrants, and that there will be more of them. Currently the visas have three-year limits and are capped at 65,000 per year, but proposals suggest raising the limit to six years and increasing the quota to 300,000. While it looks good on the H-1B front, however, there is considerable doubt about whether or not a “startup visa” targeted at entrepreneurs who want to set up companies in the US will be part of the any of the packages. Such a visa is exactly the sort of thing that HackerRank’s Karunanidhi, and many others like him, could benefit from.

“The startup visa is the most important thing the government could do for startups,” says Lesa Mitchell, vice-president of innovation at the Kauffman Foundation. “If we had a list of one through five [of top priorities], it’s one through four.”

The federal government is investing billions of dollars in science, technology, engineering, and math education, but much of it is going to universities and research institutions where a significant number of Master’s and PhD students are first-generation immigrants, she said. When they graduate, many of them leave the country. “This is our opportunity to get a return on investment,” Mitchell says.

While plenty of research shows that immigrants often start tech companies, it's harder to come by data that shows how much opportunity is being missed by not allowing foreign entrepreneurs to settle here. The Kauffman Foundation, however, has noted that the proportion of startups with at least one founder who is from another country has fallen from 52 percent to 44 percent over the last seven years.

Some politicians are paying attention and promising to take action on the issue of startup visas. In his introductory remarks to the State of Entrepreneurship Address, Senator Jerry Moran (R-Kan) extolled the importance of immigrants to the US economy. Next week he will reintroduce Startup Act 2.0, a bill that includes a provision for a startup visa that would allow foreign entrepreneurs who have investment to start a company in the US. “We need to make certain that the American Dream is lived in America,” he said.

Earlier today, Moran and two other senators – Chris Coons (D-Del) and Mark Warner (D-Va) – issued a letter to President Obama asking him to make entrepreneurship a focus of Tuesday’s State of the Union address. “As you prepare to deliver your State of the Union address, we encourage you to speak about the important role entrepreneurs play in economic growth and job creation,” the senators said in the letter.

Obama himself has publicly expressed his support for a startup visa. In a recent speech on immigration in Las Vegas, he addressed the issue head on:

Right now in one of those classrooms there are students wresting with how to turn their big idea – their Intel or Instagram – into a big business. We're giving them all the skills they need to figure that out, but then we're going to turn around and tell them to start that business and create those jobs in India or China or Mexico or someplace else. That's not how you grow new industries in America. That's how you give new industries to our competitors.
Despite the apparent widespread and powerful support, nothing is certain in politics. The startup visa might be considered a bridge too far for the congressmen debating the bill. Discussion around illegal immigrants and paths to citizenship might overshadow and sideline any debate about high-skilled immigrants. Gun control or the debt crisis could push immigration reform off the agenda completely.

More importantly, there could be significant pushback from opponents who argue that the tech industry is already well served by visa laws, and that any expansion of the H-1B rules would just lead to more “indentured servitude,” since such visas are granted only on the condition that an employee is tied to one particular company – usually a large corporation, such as Google, Amazon, Apple, Intel, or Microsoft. That’s an argument made in yesterday’s New York Times by Ross Eisenbrey of the labor-affiliated Economic Policy Institute. The proposed reforms, Eisenbrey argued, would

flood the job market with indentured foreign workers, people who could not switch employers to improve their wages or working conditions; damage the employment prospects of hundreds of thousands of skilled Americans; and narrow the educational pipeline that produces these skilled workers domestically.
Eisenbery also said that, according to the Congressional Research Service, the US granted permanent residence to almost 300,000 high-tech workers over the 2000s, as well as granting temporary work permits to hundreds of thousands more. Almost 90 percent of Chinese and Indian students who earn science and technology doctorates in the US remain in the country, he said.

Proponents of reform and the startup visa are readying themselves for the fight. “Being quiet now is the worst thing we could possibly do,” says Michael McGeary, co-founder and political strategist of Engine Advocacy, which at the end of the month will host a Startup Day on the Hill to highlight various startup issues, including immigration, for lawmakers. “We’ve got to be in this debate, full throated, as much as we can, as long as we need to, to make sure the ball gets over the goal line.”

It’s far from a done deal, he says, and in fact the deal hasn’t even been sketched out yet. “Now is the time for the community to really get together and keep the drum beat going.”

[Image courtesy stormwarning]

Other stories in our series on immigration reform: