The following post was written by @ManuKumar for K9 Ventures blog on September 24, 2009, we've republished this post in its entirety with permission from the author because of its relevance to the Indian entrepreneurial community.
In the past few days there has been a lot of discussion on the topic of a Founders Visa. The credit for starting this fire goes to Paul Graham from Y Combinator, who wrote a great essay titled The Founders Visa in April 2009. Brad Feld (Brad is an advisor to K9) from the Foundry Group was instrumental in keeping the flame alive by posting about it on his blog (The Founders Visa Movement) in September. More recently, Eric Ries and Dave McClure added fuel to the fire (See Eric Ries’ blog post: Support the Startup Founders Visa with a tweet) and helped kick off a campaign on @2Gov. As an immigrant founder, this is a topic that I can relate to and care about. This was one of the biggest hurdles I had to overcome when I was starting up, and if I hadn’t been fortunate to find ways around it, my story would have been very different. I figured I would share some of the background of this story here, as it may help make a case for the Founders Visa movement.
I came to the United States in 1992 at the age of 17 (so there, now you know exactly how old I am!) to attend Carnegie Mellon University. My interaction with what was then called the Immigration and Naturalization Service started earlier that year to get an F-1 (Student) Visa for my undergraduate studies. Fortunately, my application for the F-1 visa was very smooth, and I was granted a 5-year visa to study at Carnegie Mellon. I completed my Bachelors in 3 years (another story for another time) and so was able to go directly into a professional Masters program (also at Carnegie Mellon) and complete a masters degree without having to apply for a new visa. During that time, I did one three month long internship — actually it was closer to 2 months, but it used up three months of my 12 month F-1 OPT window.
In December 1996, while I was still a student in the Master of Software Engineering program at Carnegie Mellon, I got bit hard by the entrepreneurial bug. I always knew that I would someday start my own company. It was only a question of when, where, and how. I decided that I was going to do it right then. The first step to figuring out whether this was even possible was to determine if I could start a company while I was on a student visa. After some research, including speaking with lawyers who were kind enough to answer my questions, the conclusion was that any person, whether a US citizen or not, whether in the US or not, can own assets in the US. What that meant was that I could start a company, own the company, but under the terms of the F-1 visa, I couldn’t work for the company (i.e. couldn’t draw a salary). The latter was fine by me since there was no money in the company for me to draw a salary any way. I formed SneakerLabs, Inc. in December 1996, while on a student visa.
I graduated from Carnegie Mellon in 1997 and decided to use my OPT to give the company a proper shot. I knew that in the worst case scenario, if things didn’t work out, I could always fall back to the traditional route of looking for a job. So this was a great time to take a chance on myself and see what I could do. The F-1 optional practical training (OPT) is one of the best things about the student visa program as it affords the flexibility to work for any company, provided it is in your field.
I was bootstrapping the company and started with $5,000 that I had saved up from a prior summer internship. I spent $2,500 on the first computer and let’s just say that there were lots of tomato sandwiches consumed for a while (I guess the tomato sandwiches were my healthier version of PG‘s Ramen noodles.) To bring in some money into the company, I started consulting through the company (to pay the company bills) and teaching at Carnegie Mellon as a lecturer (to keep the tomato sandwiches going!). At the same time, I was also working on the product. I hired my TA as my first employee and paid him $12.50 an hour to come to my apartment and hack code with me in my living room, which I converted into an office.
Towards the end of my OPT (mid 1998) is when the H1-B visa cap issue hit. The US issues 65,000 H1-B work visas every year. And it so happened that that year, all of the 65,000 visas had been issued and there would be no more visas available till October of that year. I was within weeks/months of being “out of status.” The options were to either go back home to New Delhi, India, or, risk getting myself into an immigration nightmare. Fortunately, I had advisors who helped me come up with creative solutions. They suggested I go back to being a student. I applied to a PhD program at Carnegie Mellon so that I could return to a F-1 (Student) visa while I was waiting for the next round of the H1-B visa quota. Fortunately, I was accepted into the program and that allowed me to legally stay in the United States. I took myself off the payroll of the company and went back to being a student.
When it came time to apply for an H1-B there was a genuine concern that my fledgling company may not be able to show that it had the financial resources to pay the prevailing wage for me. This meant that I had to either show enough revenue, or find investors who would be willing to put money into the company. There were a sum total of three or four “venture capital” funds in Pittsburgh at the time, and none of them had done much with this new fangled thing called the Internet. Besides I was a young, first-time entrepreneur at the age of 23. Raising money in Pittsburgh was not going to be easy.
In my attempt to build credibility and recruit people for my little company, I had started the Pittsburgh Java Users Group (the PittJUG today has close to 500 members!). By a stroke of luck, I met a visiting professor at one of the PittJUG meetings who offered to introduce me to his friends who were looking at investing in startups. I engaged in conversations with these angels investors and they provided a letter that I could use in support of my H1-B application. Some of you may have already caught on to this by now, but it is rather unusual for someone to start a company and then have an H1-B sponsored through that same company. My second employee signed the H1-B petition on behalf of the company so that I could be hired by my own company!
In the meanwhile, I had also been teaching more at Carnegie Mellon. The Director of my Masters program, the late Dr. James Tomayko, agreed to hire me on full-time at CMU and file for a second H1-B visa through Carnegie Mellon. This was great as it provided me with a backup option in case the petition through my own company was rejected.
In October 1998, I was excited beyond belief when I received an approval notice for an H1-B visa through my own company! I could now legally stay in the US and work for my own company. This also eliminated the big risk for my potential investors that I wouldn’t be able to stay in the country, and so I was able to close the financing round for the company in November 1998. I was elated to have overcome one of the biggest hurdles of my entrepreneurial career and ready to build my company.
In a startup cash is king. Under the terms of my H1-B visa, the company was required to pay me a prevailing wage of $60,000. However, I didn’t need that much to survive. I would much rather leave more money in the company and have a longer run way ahead of us. The workaround was that the company would pay me at the prevailing wage rate of $60,000 per annum, but then I would take a part of what I received in-hand, and loan it back to the company. The loan would be senior debt on the company’s books. If the company failed, I would lose it all. If it succeeded, I would get paid back. Fortunately, things worked out and the repayment of my loan to the company is what allowed me to buy my first new car.
I should emphasize that there were multiple points at which I came very close to having to leave the United States because of the visa issues. Though in the end it all worked out and the above story reads like it was all smooth, I can tell you that it wasn’t. I couldn’t go out and raise money for the company when I started because the risk of my having to leave the US hung over my head as the sword of damocles.
My journey with the INS by my side continued as my companies grew and became successful. Over the years, I held multiple H1-B visas (for SneakerLabs, Carnegie Mellon, Octane/E.piphany and iMeet). Every corporate transition we went through meant that I had to re-file for my visa under the new company.
After the success of SneakerLabs, I wanted to try and get legal permanent resident status, so that I could end the immigration hassles once and for all. My immigration attorney (Robert S. Whitehill, now a partner at Fox Rothschild) suggested that we shouldn’t use the typical path to a greencard under the EB-3 (Skilled worker/professional) category. The EB-3 greencard could take up to 5-6 years to be approved since it required labor certification. For anyone coming from India (like me) or China, this mean a protracted waiting period. Instead, we opted to go for the EB-1 (Alien of Extraordinary Ability) category. While it would take several months for me to assemble the dossier in support of an EB-1 application, there was no waiting period for EB-1s (no labor certification required) and it could be a faster path to getting a greencard. Bob’s advice was fortuitous since the EB-3 is also employer-sponsored and so if you change companies (which I of course did) the application would have to be refiled and would lose its position in the queue. The EB-1 on the other hand is self-sponsored and not tied to any company, which turned out to be the right choice for me.
I got my greencard approval in 2001, a few months after 9/11. By this point, I had already sold my first company and founded two additional companies. My first company employed about 20 US citizens (I was the only “alien”). My second company at its peak employed about 80 people — also almost all US citizens.
Technology leadership and innovation knows no bounds. There are smart people all over the world. What has worked for the United States for so long is that these people gravitate towards the United States. Some, like me, come to the United States for their higher education and advanced degrees. The definition of entrepreneurship is ‘insane perseverance in the face of complete resistance.’ Therefore, I fundamentally believe that true entrepreneurs will find a way regardless of how difficult or complex the system may be. I’ve used my own experience as a prototype to help the founders of two of my portfolio companies obtain their legal permanent resident status by going through the EB-1 (Alien of Extraordinary Ability) and EB-2 (National Interest) process respectively. However, in both cases, these founders had advanced degrees (PhDs) from Stanford, and were already amazingly accomplished in their field. Therefore, they could make the case for their legal permanent residency under these categories. That doesn’t however account for the thousands of other highly qualified individuals who would otherwise make for brilliant entrepreneurs.
I have chatted first hand with founders of companies that are from Singapore, Ireland, India and various other countries who have to contend with visa issues. These visa issues often become one of the significant hurdles to pursuing their entrepreneurial dreams here in the United States. I am now a bonafide citizen of the United States and as a US citizen, I feel strongly that the best thing the United States can do is to attract and retain the smartest people from all over the world. Having a Founders Visa would not only encourage the formation of new ventures that would create jobs and prosperity in the United States, but would be one more way for the US to attract and retain top talent from all over the world. PG, Brad and others have already addressed how the vetting and qualification process can work to ensure that the right people are allowed into the US. Modifying the criteria for the EB-5 visa category such that the investment dollars can come from US-based venture capital firms seems to be the most efficient way to make a Founders Visa happen.
I’d encourage you to participate in the Founders Visa Movement by voicing your opinion on your blog, in the comments below and most of all by sending a tweet for the cause at @2gov.
Update 09/27/2009: Slightly updated the post to explain why the choice of an EB-1 over and EB-2/EB-3 (protracted waiting period for labor certification since I am originally from India).
Update 03/12/2010: Vivek Wadhwa pointed out that the Startup Visa is something the Kauffman Foundation has been looking into for a while, possibly pre-dating PG’s blog post. Kudos to the Kauffman Foundation for doing so and kudos to PG for bringing it to the foreground with his blog post.