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​US startups with H-1B staff have more chances of landing funds

Published on: 12-Nov-2019

US technology startups that employ immigrant workers on H-1B visas have a higher chance of raising funds from venture capital firms and exiting through a public offer, a US-based think tank has said. These firms file more patents, generating significant economic value, according to a working paper by researchers for the National Bureau of Economic Research (NBER).

"If we compare firms that apply for H-1B visas and win in the lottery with firms that also applied but did not win, the lottery winners are more likely to receive additional external funding (and) more likely to have an IPO or a positive exit (positive exit is an IPO or being acquired for a substantial amount), and receive more patents," Stephen G Dimmock, one of those who worked on the research paper, told ET in an email.

Dimmock, who is professor of finance in the Division of Finance and Banking at Nanyang Technological University in Singapore, along with Scott J Weisbenner and Jiekun Huang of the Department of Finance at the University of Illinois at Urbana-Champaign, found that companies that employed workers on H-1B visas had a 10% higher chance of raising funds, and a 25% chance over a five-year period to get a higher exit.

Indian IT services firms have traditionally got more H-1B visas for projects with clients in the US. In the last few years, however, the denial rates for H-1B visas have gone up sharply, partly in line with the Donald Trump administration's 'Buy American, Hire American' policy.

Increased scrutiny of applications for fresh H-1B visas, as well as extensions, has resulted in denial rates spiking to 24% in 2019 from 6% in 2005. The Trump administration has also increasingly been favouring US technology firms over Indian firms to issue a majority of the 85,000 work permits for technology workers.

ET reported last week that Google, Facebook, Apple and Amazon were among the top 10 recipients of H-1B visas in 2019. Indian nationals account for over 70% of the H-1B recipients, according to data from the US Citizenship and Immigration Services.

The continued crackdown on H-1B visas would likely hurt innovation in the US, the NBER paper, titled 'Give Me Your Tired, Your Poor, Your High-Skilled Labor: H-1B Lottery Outcomes and Entrepreneurial Success', showed.

The study was done based on available data on such visas with the USCIS and company data on Crunchbase. "The current crackdown on H-1B visas will likely make it more difficult for startups to hire the desired workers and might reduce innovation and patenting," Dimmock said.

"One channel that we show in our paper is that firms that receive H-1B visas are better able to innovate, which could help firms secure additional venture capital funding," Dimmock said.

Apart from the likelihood of a successful exit, the study also looked at how H1-B workers contributed to innovation and found that these startups did better on various parameters around patent filings and citations.

Source: ET, 12 November 2019

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