Harvard Research: Why Immigrants Are More Likely to Become Entrepreneurs

Of interest:

If you’re lucky enough to have received a Covid-19 vaccination, you probably have an immigrant entrepreneur to thank. Not only are Pfizer, BioNTech, and Moderna pioneers in the field of mRNA-based vaccine research; they were all founded or cofounded by immigrants.*

The entrepreneurs who started those companies are prominent examples of a larger trend. A 2012 study found that immigrants were more likely to start businesses than members of the native population in most of the 69 countries surveyed. In the United States, where 13.7% of the population is foreign-born, immigrants represent 20.2% of the self-employed workforce and 25% of startup founders. And according to a 2018 study by the National Foundation for American Policy, immigrants founded or cofounded 55% of the United States’ billion-dollar companies — so-called unicorns.

Yet we have a limited understanding of why so many immigrants take the risk of starting a company. Previous research has attributed the phenomenon to host-country effects, such as labor market discrimination, selective immigration policies, and the availability of specific opportunities within ethnic groups in areas with high overall immigration.

In my recent research, I explored a more hidden driver of immigrant entrepreneurship: personality-based self-selection. The decisions to emigrate voluntarily and to start a company are both associated with high levels of risk. Entrepreneurs of all types face the threat of business failure. As a study of startups in several OECD countries showed, just above 60% survive past their third birthday, and only 40% make it past their seventh one. Immigrants, too encounter significant additional risks, from unemployment or underemployment to xenophobia and psychological trauma.

My hypothesis was that people with a high tolerance for risk would be more likely than others to perceive both voluntary emigration and entrepreneurship as viable paths. So I expected that immigrants would be more likely than others to start businesses precisely because of their appetite for risk, which helped them go abroad in the first place. I tested the hypothesis through a longitudinal study of engineering and business students at two Austrian universities. In 2007 I surveyed 1,300 students about their risk-taking preferences and their intentions and concrete plans to start a business and move abroad for work. Twelve years later I collected a second wave of data from 360 of them, via two professional social media platforms, to learn about their careers since the first survey was conducted.

The results confirmed my hypothesis: Students with a high willingness to take risks were significantly more likely than others to plan to emigrate and start a business, and by 2019 those plans had become reality. More than a quarter of the former students had moved abroad, and many had become entrepreneurs. While 19% of the non-emigrants in the sample had started one or more companies, 29% of those who had emigrated and still lived abroad had done so. Among those who had emigrated but subsequently returned to Austria, the figure was even higher: 43% had started a business in the 12 years covered by the study.

Statistical analyses confirmed that a high willingness to take risks contributed greatly to the results, even after controlling for age, gender, entrepreneurship experience, and other variables. Additional findings suggested that self-selection effects might extend to other personality traits that have been associated with success as entrepreneurs and in the labor market. The data showed that individuals with a high achievement motivation (a tendency to set and accomplish challenging goals) were significantly more likely than others to emigrate and to plan on becoming entrepreneurs at some point in the course of their lives.

These findings have direct implications for investors and policymakers. In recent years some venture capitalists, such as Unshackled Venturesand OneWay Ventures, have set up funds that work exclusively with ventures founded or cofounded by immigrant entrepreneurs. Along with startup support, they provide services tailored to the needs of foreign-born founders, including visa and legal advice. Their investment rationale is simple, and it’s very much supported by my study’s results. As OneWay Ventures argues, owing to self-selection, “immigrant founders have a competitive advantage when it comes to building impactful, global reaching ventures.”

From a policy perspective, the findings suggest that the entrepreneurial potential of immigrants extends beyond the small group of late-stage international entrepreneurs who are usually the target of entrepreneurship visa programs and investment promotion agencies. Public policy should also support nascent entrepreneurs among immigrants by providing funding, training, access to work spaces, and help navigating the administrative processes associated with starting a business as an immigrant.

In countries with net emigration, self-selection can pose challenges; entrepreneurial talent can become part of the overall “brain drain.” Although countries of origin benefit from emigrants’ entrepreneurial activities through trade and remittances, they experience fewer job-creation and economic-spillover effects than host countries do. Still, there’s a silver lining to my findings: As noted, emigrants who returned to their countries of origin were the most entrepreneurial group in the study’s sample, most likely because of the experience and opportunity-recognition capabilities they gained abroad and the advantage of operating in a familiar environment upon their return. Successful public programs in China, Senegal, Mexico, and the Philippines show that countries of origin can make use of the high potential of this group through targeted entrepreneurship support.

The social impacts of such policies can be significant. Entrepreneurship can provide immigrants and return immigrants with opportunities for upward mobility and integration. What’s more, it contributes to job creation and innovation in the society at large. It might even lead to the development of a new type of vaccine against a global pandemic.

Source: Research: Why Immigrants Are More Likely to Become Entrepreneurs

Black business owners raise concerns about government loan fund

This has echoes of the WE Charity political scandal given the sole source process followed with an organization close to the PM (his riding), an untested organization in program delivery, and complaints by applicants regarding the program requirements.

Will be interesting to see the results one year from now in terms of disbursements and areas of activity, and at the five year program evaluation benchmark.

And while I always welcome more information of the demographics of applicants, this does seem overly intrusive:

Some Black businesspeople say a new government program meant to bolster Black entrepreneurship is hard to access, offers unclear repayment terms and asks invasive questions about applicants’ sexuality.

The Black Entrepreneurship Loan Fund was announced in September by Prime Minister Justin Trudeau. Its application portal launched late last month.

The $291.3 million program offers loans of up to $250,000 to businesses that are majority Black-owned. Black entrepreneurs starting companies or operating existing small businesses can also apply for funding.

Source: Black business owners raise concerns about government loan fund

Why The US Is Losing Immigrant Entrepreneurs To Other Nations

Interesting longish read on how USA is becoming less attractive given immigration restrictions, and how other countries, including Canada, are benefitting:

John S. Kim, cofounder of Sendbird, which offers real-time chat and messaging for mobile apps and websites, relocated from his native South Korea to San Francisco five years ago.

He wanted to be close to his U.S. customers like Yahoo, Reddit and Headspace,have access to Silicon Valley venture capital, hire American engineers and expand his company here. He easily obtained an L-1 nonimmigrant visa for foreign executives, given that he’d first started the business in South Korea, but by 2019, he had only one extension left. He applied for a green card to get legal permanent residency—and received a letter that he’d likely be denied. “Notice of intent to deny is, ‘We’re going to kick you out; change our mind,’ ” he says. “We had raised $100 million–plus in financing, we had real revenue in the tens of millions of dollars, we were creating jobs. It was a slap in the face, for sure.”

Source: Why The US Is Losing Immigrant Entrepreneurs To Other Nations

Maybe We Should Build A Wall To Keep Immigrants In

Nice reverse argument, with some numbers to back it up:

In the midst of overheated debates about immigration and an ugly upsurge in nativism, it’s worth reminding ourselves that entrepreneurial immigrants make an outsized contribution to new business creation. And new and young companies are the primary source of job creation in the American economy.

The contributions of entrepreneurial immigrants have been well documented:

  • Immigrants are twice as likely to become entrepreneurs as native-born Americans.
  • As of 2016, first generation immigrant entrepreneurs represented 30% of all new entrepreneurs in 2016, up substantially from 13% in 1996.
  • Forty-three percent of founders of the 2017 Fortune 500 are immigrants or the children of immigrants.
  • Immigrants constitute 15% of the general U.S. workforce, but they account for around a quarter of U.S. entrepreneurs (defined as the top three initial earners in a new business) and account for a about a quarter of U.S. inventors.
  • Immigrants account for more than 90% of the growth in self-employment since 2000, with particularly significant contributions since the Great Recession.
  • Firms founded by immigrants close at a faster rate than firms founded by natives, but those that survive grow at a faster rate in terms of employment, payroll, and establishments, a phenomenon called “up or out,” which is how young firms create more jobs.
  • Half of America’s startup companies valued at $1 billion or more (as of January 1, 2016) were started by immigrants.

Despite those contributions, our inadequate HB-1 visa system coupled with anti-immigration rhetoric and attempts to further limit legal immigration are driving many foreign students to return home when they’ve completed their education, driven away many other skilled immigrants who have tired of the interminable and uncertain wait for a green card and discouraged talented people abroad to seek more hospitable countries like Canada.

But the real flashpoint in the immigration debate has been around Latin American immigrants, fueled by baseless claims of an “invasion” on our southern border. (From the end of the Great Recession, more Mexican immigrants returned to Mexico from the U.S. than migrated here, according to a 2015 Pew Research Center study.) Meanwhile, Hispanics have made significant contributions to the entrepreneurial economy:

  • The five areas with the highest startup activity in the 2017 Kauffman Startup Activity Index were, in order, the metropolitan areas centered on the cities of Miami, Austin, Los Angeles, San Diego, and Las Vegas—all cities with heavy concentrations of Latinos.
  • Among minority ethnic and racial groups, Latinos have the highest rate of new entrepreneurs.
  • The Latino share of all new entrepreneurs rose from 10% in 1996 to 24% in 2016.

Far from the hothouse of Silicon Valley and its venture capital-backed startups, the vast majority of Latino entrepreneurs, like 99% of all entrepreneurs, are what I call bedrock entrepreneurs. Typically, they start modest businesses (sometimes with themselves as the only employee), largely fund those businesses out of their own pockets and the pockets of their family and friends. They start small; they try to minimize losses and avoid failure, and methodically grow their businesses over the long haul.

Although there are no definitive studies, many observers ascribe higher rates of entrepreneurship among immigrants to personal characteristics like a willingness to take risks (as they did when they moved to an unfamiliar country), a strong sense of identity and intrinsic motivation. Many Latino immigrants, facing discrimination and lacking good English skills, have little choice but to be entrepreneurial. As a result, they are likely to perceive opportunities that other people miss, possess an ability to persist through the myriad difficulties of entrepreneurship and draw on deep reserves of motivation to succeed.

In addition, as politicians debate the ultimate fate of people who were brought to the U.S. illegally as children, they might want to remember this: Immigrants that came to the U.S. as children are more likely to start larger firms than immigrants who arrived as adults and have lower closure rates. Moreover, a 2017 survey conducted by the Center for American Progress found that among the DREAMers under Deferred Action for Childhood Arrivals (DACA) some 5% of respondents started their own business after receiving DACA. Among respondents 25 years and older, that figure rises to 8%. Meanwhile, among the American public as a whole the rate of starting a business is only about 3.1%. According to the U.S. Hispanic Chamber of Commerce, which represents the interests of more than 4.37 million Hispanic-owned businesses, if both the DREAMers and recipients of Temporary Protected Status (TPS) were forced to leave the United States, the U.S. economy would experience a $597 billion reduction in gross domestic product (GDP) over the next decade.

With entrepreneurship in long-term decline, we need all the entrepreneurs we can get. Thirty years ago, about 800,000 new companies in the US were being formed per year, and in some years there have been as many as 13 million people aspiring to start their own businesses. Today only about 600,000 businesses are being formed per year and the number of aspiring entrepreneurs has dropped to about 10 million. Immigrants, with their strong propensity for new business creation, can help reverse that decline, create jobs, help lift our economy and contribute to the general well-being of the country—but not if we drive them away.

Source: Maybe We Should Build A Wall To Keep Immigrants In

StatsCan Study: The exit and survival patterns of immigrant entrepreneurs

Yet another interesting study by StatsCan:

In most developed countries, self-employment is more prevalent among immigrants than among native-born individuals. However, much less is known about the survival and longevity of immigrant-owned firms. A small body of international research suggests that immigrant-owned businesses have shorter durations of survival than businesses owned by the native born. There has been little evidence on whether or not this is the case in Canada. Information on business survival is relevant to business development policies and the measurement of the economic impacts of immigration.

A new Statistics Canada study examines the duration of business ownership among immigrant and Canadian-born individuals. The study finds that, on average, there was little difference in the duration of ownership between immigrant and Canadian-born owners of private incorporated companies.

The study uses data from the Canadian Employer-Employee Dynamic Database, including individual and corporate tax returns and immigrant landing files, and focuses on ownership of private incorporated companies that started between 2003 and 2009. Ownership was tracked for up to seven years after start-up. The analysis builds on previous research studies that examined the prevalence of business ownership among immigrant entrepreneurs and the industries in which they were found.

The new Statistics Canada study finds that the rate of business failure is highest in the initial years after start-up. Specifically, among all immigrant owners, 11.5% terminated ownership after one year in business, with this share declining to 3.9% after seven years in business. Overall, about 80% of all immigrant business owners were still in operation after two years and 56% were still in operation after seven. Exit rates from business ownership and the duration of ownership were about the same among Canadian-born owners of private incorporated firms.

Recent immigrants (that is, those in Canada for less than 10 years) had higher exit rates from ownership and shorter durations of ownership than did the Canadian-born or longer-term immigrants (that is, those in Canada for 10 or more years). While 51% of recent immigrant business owners were still in operation after seven years, this was the case for 57% of long-term immigrant business owners and 58% of Canadian-born business owners.

Among recent immigrants, business class immigrants had the highest exit rates and shortest duration of ownership. Among longer-term immigrants, exit rates and the duration of ownership varied little across immigrant admission categories.

A number of other factors were found to be associated with longer duration of business ownership among immigrant owners, including being 30 to 49 years of age; owning a business in the health sector; and being from Europe, Southeast Asia, India, or select English-speaking countries, such as the United States, the United Kingdom, Ireland, Australia, New Zealand or South Africa. Education was found to have only a small effect on exit rates and duration once the effects of other variables were taken into account.

Immigrant owners of private incorporated businesses in the health sector (for example, laboratories, nursing companies, doctors’ offices and chiropractic practices) had particularly long durations of ownership and exit rates that were only one-third of those observed among immigrant business owners in other sectors. Owners in real estate and leasing, food and accommodation, professional services and wholesale trade generally had the shortest duration of ownership.

via The Daily — Study: The exit and survival patterns of immigrant entrepreneurs

Immigration: Donald Trump Pushes Silicon Valley to Toronto | Time.com

Smugness alert for Canadians. Nevertheless there is some merit in Salim Teja, EVP of Ventures at MaRS’s arguments and narrative:

 Without immigrants, Silicon Valley would look very different. There would be no Amazon, no eBay. No Reddit, no Intel. Google, Tesla, and Yahoo? Gone. And you can say goodbye to your iPhone.

These are just a few of the biggest names, but half of all billion-dollar U.S. startups were founded by immigrants. Silicon Valley would simply not exist, and the United States’ position as a global tech leader might never have come to fruition.

Under President Donald Trump, we are not far from this hypothetical. Trump’s immigration ban and H-1B visa restrictions will significantly harm the U.S. technology industry, diverting the steady, decades-old stream of foreign tech talent to international competitors.

And there’s no country better positioned to welcome this diverse group of innovators than Trump’s northern neighbor: Oh, Canada. At the center of the country’s identity is Toronto — the fourth-largest city in North America. Boasting a diverse community, booming tech scene, and forward-thinking government, this city is the leading contender to welcome tech talent and become the next epicenter of innovation.

A Culture of Inclusion

It’s easy to talk in generalities when it comes to diversity and inclusion — but I’m actually a product of Canada’s welcoming stance on immigration. My family emigrated to Canada from Tanzania, East Africa. We fled political turmoil and settled in Canada to build a better life. It would also become the place where I eventually began to flourish as an entrepreneur.

 Forty years later, Canada is still a beacon of hope for immigrants, an open society that is welcoming refugees in unprecedented numbers. Toronto was recently named the most diverse city in the world, and has become a cultural haven in which foreign entrepreneurs can pursue innovative ideas. In fact, it’s easier than ever for immigrants to work up north — capitalizing on Trump’s decision to delay H-1 B visas, Canada recently announced an expedited work permit process, allowing foreign talent to be approved for work in a short ten days.

Toronto recognizes that diversity both breedsinnovation and is good for business. As the EVP of Venture Services at a Toronto innovation hub, I’ve seen the power of diversity on the startup teams we are advising. Of the roughly 1,000 startups within our ecosystem, 54% have at least one foreign-born founder – a higher percentage than Silicon Valley.

So, as America tightens its borders and retreats inward, diversity in cities like Toronto will flourish.

Infrastructure for Innovation

Toronto’s diverse community has fostered a rapidly growing startup scene. Recently named one of the world’s most innovative cities, Toronto is home to between 2,500 and 4,100 active tech startups, the world’s largest innovation hub, and world-class academic and research institutions.

And with 150,000 full-time students enrolled in universities in the Greater Toronto Area — many focused on science and engineering fields — the region benefits from a robust pool of entrepreneurial and tech talent. Of course, this hasn’t always been the case: while Canada has historically been victim to a “brain drain” of academic talent emigrating to the U.S., Trump’s policies will undoubtedly lead to more talent staying in Toronto; and we may start seeing the reverse as Silicon Valley talent leaves to head north. University of Toronto has already seen a 70%increase in applications from American students following Trump’s win.

As always, tech follows the money — Toronto’s rapidly developing venture capital community is setting record investment numbers. VC in Canada hit a 15-year high in 2016, with a total of $3.7 billion invested— a whopping 36% increase over 2015. I haven’t seen Canadian VC excel at this rate since the dot-com boom, and every day speak with investors from around the world looking to cash in on Canadian ventures. With names like Shopify and Hootsuite rivaling Silicon Valley successes, I can understand why they’re hedging their bets.

The New Wave of Global Entrepreneurship

Where investors see the most potential, however, is in ventures that scale — ventures that tackle tough problems and provide global solutions.

And as someone who works with fellow immigrants every day, I believe that foreign entrepreneurs are more likely to develop these types of solutions, with the broadened worldview necessary to take on global issues. In fact, amongst our ventures with foreign-born founders — over 70% have some social purpose in mind, developing solutions in areas like healthcare and clean energy. A Syrian refugee creating an open approach to drug discovery.

A Mexican immigrant developing digital solutionsfor mobility impairments. These are the breakthroughs I see from global entrepreneurs in Toronto every single day.

While I believe that Silicon Valley once fostered this type of innovation, somewhere along the way it got stuck in a “move fast and break things” mentality, promoting innovation for innovation’s sake. They stopped caring about true progress and started caring about VC dollars — today, you’re more likely to see the Valley pump out a new photo editing app or subscription box before a clean energy solution or drug therapy. And with Trump’s new restrictive policies, fewer entrepreneurs will be able to come to the U.S. to build the globally impactful ventures that society truly needs.

But as America shuts them out, Canada welcomes them in. Global entrepreneurs can find a home in Toronto — a city that sees beyond borders, and whose tech community leads the world with solutions in cleantech, biotech, and more. For all of Trump’s talk about bringing back jobs to America, he may actually be helping to send them to Canada. And just as it once did for my family,

Toronto welcomes this talent with open arms.