VCs back immigrant founded start-ups in US
Venture capitalists in the US are providing support to start-ups created by immigrants. Such start-ups have been threatened by the Trump administration’s decision to delay a ruling that would have permitted overseas entrepreneurs to remain in the country for five years. Unshackled Ventures, which started to invest in 2015, has supported founders from 16 different countries to obtain visas by working in partnership with an immigration law firm. Immigrants founded or co-founded 50% of US-based “unicorn” start-ups worth at least $1bn, according to a 2016 study.
Though these firms, which include Unshackled Ventures, One Way Ventures, and One VC, were not created in direct response to Trump’s actions, their focus on aiding immigrants is particularly timely and vital now. “As immigration issues pop up, we’re seeing VCs answer the call and offer immigration counsel [to their portfolio companies],” says Jeff Farrah, vice president of government affairs at the National Venture Capital Association, a Washington, D.C., trade group.

Yingzhe “Regi” Fu is one beneficiary of this trend. He approached Unshackled Ventures in early 2016, a few months before he was due to graduate from the University of California, Berkeley, with a master’s in mechanical engineering. As a Chinese citizen who wanted to stay in the U.S. and help some school friends launch a home-automation-technology startup, Fu essentially had two choices: he could seek employment with a large American company that would sponsor his visa or he could convince Unshackled Ventures to support his work authorization so he could concentrate on his startup.

After several rounds of pitches, the firm agreed to sponsor Fu and provided his startup with office space, strategic advice, and access to a network of experts in exchange for a small equity stake. Today, Fu is able to work full-time on Togg, which just began deploying its smart-sensor product inside homes. “I’m very grateful for what I have right now,” he says. “I can focus on building my company and not worry about the immigration process too much.”

Since Unshackled Ventures began investing in 2015, it has helped its portfolio company founders, who hail from 16 countries, obtain seven different types of visas through a close partnership with an immigration law firm. Often, the process requires the Palo Alto-based fund to hire its entrepreneurs using H-1B visas, which lets non-Americans who have specialized technology knowledge work in the U.S. for up to six years. In order to provide that service and give its companies hands-on coaching, Unshackled Ventures limits its investments to eight to 10 companies a year, says founding partner Nitin Pachisia. (The firm typically invests up to $300,000 in a company during an angel/pre-seed round and asks for 8 to 15 percent ownership in return.)

One Way Ventures also plans to assist entrepreneurs with immigration issues when it begins investing in companies in October. However, the Boston-based fund will focus on more-established companies that are raising seed and Series A funding, and founding partner Semyon Dukach says he will likely refer people to lawyers rather than sponsor their visas. (San Francisco-based One VC has made several seed-stage investments while raising its first fund, but declined interview requests because it has yet to officially launch.)

Firms that specialize in immigrant-founded startups do so for several reasons. Typically, the VCs are immigrants themselves, know firsthand how tedious and unpredictable the visa process can be, and want to help people in similar situations. One of Unshackled Ventures’s founding partners grew up in India; the other is the son of Indian immigrants. One Way Ventures’s founding partners are from Russia and Brazil; One VC’s managing director is also Brazilian.

Some of these investors think focusing on immigrants gives them a greater sense of mission and deeper connection to their work. They also tend to believe that immigrants make better entrepreneurs. The VCs attribute this to the personal qualities that compel people to emigrate, as well as those they develop while navigating a new country. “We think there’s an overall thread between immigrant founders that’s amazing, whether it’s because of their work ethic, determination, grit, or hunger,” says One Way Ventures founding partner Eveline Buchatskiy.

Naturally, these VCs also have financial incentives. They view immigrant entrepreneurs as smart investments, in part because other VCs consider them risky, leaving them underfunded and undervalued compared to their peers. One Way and Unshackled Ventures also point to statistics that indicate how successful these startups can be, such as a 2016 study by the National Foundation for American Policy that found that immigrants founded or cofounded half of the U.S.-based “unicorn” startups that were then valued at $1 billion or more, including Instacart, Slack, SpaceX, and Uber.

Unshackled Ventures’s portfolio also shows encouraging results, with more than half of the 17 companies it has backed already generating revenue. The firm says its invested capital has doubled in value over the past three years, reaping an internal rate of return twice as high as the national average for similar-aged funds.

The Trump administration’s fixation on immigration may further boost returns. Pachisia says inquiries and referrals to Unshackled Ventures have tripled since the 2016 presidential election. One Way Ventures is still raising capital for its first fund, but has already received a number of e-mails from interested entrepreneurs. “Immigrants’ rights in general are being reduced right now, so this whole issue is getting more attention,” says Dukach.