Since it seems that several local European governments and the European Commission are keen on supporting the local startup ecosystem and are open to suggestions to fight historically high youth unemployment rates, I thought I would offer one exploration of how a new set of immigration rules on the EU level could foster jobs and innovation.
One simple measure the EU can take to stimulate business, job creation and attract innovation is to adopt a policy that would in essence cost nothing: create a dedicated immigration program or a new visa to ease the migration of startup founders and their employees to Europe.
Looking objectively at the cost and opportunities of opening Europe to entrepreneurial migrants, there seems to be a real case for an EU-wide startup visa.
More visas actually equals more job creation
Let’s say hypothetically that the EU allowed 20,000 foreign startup founders to come over each year. If you are wary of numbers, bear in mind that it only represents 1,4% of the total number of immigrants coming each year to Europe. If we assume that, on average, it takes two foreigners to co-found these startups, it brings the number down to 10,000 new companies created each year.
We cannot expect these 10,000 to become successes, but at least they will try for their first years. As a European Report states, new companies (younger than five years) are responsible for an overwhelming majority of the new jobs created in the EU: 85% of net new jobs created in the EU between 2002 and 2010 were in fact created by SMEs. On the short term, we can expect growth of jobs. Moreover, startups owned by foreigners create on average 4 jobs during their first years of existence (3.8 jobs in France, 3.6 employees for Germany, 5 in the UK). Thus, approximately 40,000 jobs would be created by foreigner-founded startups during the first few years.
The success rate of startups owned by migrants is slightly different from that of startups owned by natives. Varying according to the country, between 50% and 66% of startups founded by migrants stay in business after three years – which is relatively high given the high level of risk. With a conservative view, we will say that half will die in their first years, and the other half left will be running for 3 years minimum at a reasonable pace, among which a dozen only will be big. It means 5,000 out of the 10,000 companies will stick around, with only very few of them becoming high-growth companies.
However, the destruction of the “weak” startups will not necessarily decrease the number of jobs created; according to Schumpeter’s Theory of Creative Destruction, destruction creates.
A French statistical report indicates that the disappearance of some early-stage startups is compensated by the growth of jobs and wealth generated by the ones that did not fail. It may sound counterintuitive but in other words, some will fail – actually many of them, sadly – but the ones that will stay will create more jobs than the ones that will disappear. Job creation will come mainly from the high-growth ones. In short, boosting the creation of companies will boost job growth in the short and long run.
As a side note, tech startups specifically are an interesting case as they sometimes creates jobs / income for their own users. Take Etsy or Airbnb, for example. Both platforms allow their users to make revenue – what The Atlantic has called “invisible work.” In addition, a lot of people make money through affiliate fees, advertising networks or blogging. These are jobs that don’t show up on companies’ payrolls, but are created thanks to them.
On the business side, it is difficult to estimate how much money these foreign-owned startups will bring to the economy in their first years. Naturally, numbers will vary according to the country, industry, and business model of the various startups.
What do Fortune 500 companies and Startup Chile have in common? They love foreigners.
Based on research and empirical evidence, a startup visa looks attractive.
Why? Naturally because foreign entrepreneurs have been proven through research experiments to be major drivers of economic growth. As a matter of fact, 40% of America’s Fortune 500 companies were founded by immigrants.
Furthermore, these foreign-owned businesses have seen a huge increase in income growth up to 60% (compared to 14% growth for native-owned businesses). Immigrant-owned firms now generate more than $775 billion in revenue, $125 billion in payroll, and $100 billion in income, employing 1/10 workers along the way. We can believe reasonably that migrant owned companies in Europe will similarly create growth.
Obviously, job creation and growth in the EU works on different rules than the US. Tax policies, strict employment law and smaller national markets pose challenges to building a successful and scalable business in Europe. Luckily, the EU is one big continent with many different tax regimes – which also means that there are different options to choose from. And there are over 120 successful European startups – from DailyMotion to Spotify – that prove that Europe does have the right environment to produce great businesses.
In addition, immigrants are known to be hungry and entrepreneurial; immigrants in the US were shown to be more than twice as likely to start a business than their native counterparts. In 2011 alone, migrants founded 28% of US businesses. In other words, over 1 out of 4 US businesses were founded by an immigrant during that year. Similar statistics for Europe show that foreigners are more likely to be entrepreneurial than natives.Therefore, a startup visa would only encourage and support these types of entrepreneurial profiles amongst foreigners.
It’s no mystery that the US attracts a whole lot of entrepreneurs without having a visa for entrepreneurs specifically. There are historical, geographical and societal grounds to that. The US is a nation of immigrants and is known for having the entrepreneurial fiber in its legislative text and vision.
Europe should not be afraid to boast about some of its startup success stories – and should not forget that it still attracts many foreign entrepreneurs. However, one clear area for improvement is the administrative process to obtain a visa, which is far from straightforward.
Often, the visa is at the discretion of the administrator, making this non-transparent and uncertain process unattractive and risky for entrepreneurs and their businesses. Entrepreneurs are known for their resilience and ability to make things happen. Therefore, entrepreneurs that dearly want to make it in Europe will probably find a loophole in the immigration text to make it happen. However, this will unfortunately cost them time and money – in other words, they will waste their limited resources dealing with complicated administrative processes rather than working on their business. A startup visa and better-defined immigration rules will make it easier for entrepreneurs already living in Europe to concentrate on their business without being crushed by the administrative hassle.
Ultimately, a successful entrepreneur visa scheme will create momentum and attract other entrepreneurs as well. This will likely include the ones who thought coming to Europe was too much of a hassle and the ones who were initially thinking of other countries – like the US or Australia. Chile has created a startup visa program that has had an incredibly positive impact – both internationally and locally. Since 2010, Start-up Chile has grown from a program of 22 startups to over 1,000 startups, putting Chile as a leading destination for global entrepreneurs.
Moreover, it has also fostered the development of the local startup scene. While the first program had only 10 percent Chilean applicants, the most recent round had 37 percent Chilean and 50 percent Latin American applicants. A European startup visa could foster and bring together the various startup ecosystems from multiple European capitals in a similar way.
Finally, why would one want more entrepreneurs and more competition to our native entrepreneurs in Europe when the Schengen Area exists? Well, Berlin’s rapid rise and international appeal have made it clear why a cosmopolitan environment with relatively easy administrative rules can attract the best talent (about half of the business founders in the city are not German). What’s interesting is that there has been almost no help from the State. That said, it is relatively easy for foreigners who are especially likely to start a company to set up shop.
The importance of an entrepreneur visa has been already acknowledged in many other countries and action has been taken by these countries’ governments to make sure they are sending a welcoming message to international entrepreneurs. For example, Canada has launched last year a startup visa for entrepreneurs that provides permanent residency immediately. New Zealand, as well, is redesigning its immigration policies to reflect the country’s openness to foreigners. As for Australia, an entrepreneur visa has practically existed since the 1970s. The US is heading in a similar direction with a new immigration bill, including a startup visa pushed by strong, cross-party tech lobbies.
If Europe is not currently the place that most entrepreneurs choose to start a business, well, that doesn’t mean it has to accept that situation. The creation of a startup visa will send the signal that Europe is open, seeking and supporting entrepreneurs. Better yet, such a visa will also show that Europe wants to foster business creation. This was the case with Canada’s Startup visa, which was created in order to lure entrepreneurs from Silicon Valley.
The difficult part for the EU is now to set the criteria in order to select the right candidates, and to verify that such a beneficial and generous visa will not get abused. Chile, Canada, New Zealand, Australia, the UK, etc. are interesting examples to study and pick from. A simple solution that most governments have chosen so far is to give preferential treatment to investment. Naturally, this route is easier; money talks more than a startup pitch.
Now is the time for all EU countries to come together to solve the growing problem of high unemployment for the younger generation. In Spain, for example, youth unemployment has hit the 25% mark.
Immigration to the EU is predominantly represented by family migration more than work: 10% of yearly immigration flow to France are work-related, and the same goes for Germany. 20,000 foreign entrepreneurs is nothing to the immigration standards (1,4% of the overall EU numbers). We need entrepreneurial migrants that will be able to create new job opportunities for locals. These people would represent a huge increase in the pool of startup founders, job creation and companies in the EU.
It would have such a visible effect on the economy that it would raise the profile and popularity of the EU. Now, the only way to know for sure how it works is to try it, and that would cost practically nothing.
How can this not feel like a great opportunity to Europe’s effort to foster growth, employment and innovation? I’m left wondering.
Featured image credit: FotograFFF / Shutterstock