This week was a big week for many people in Silicon Valley, and an instructional one for many people outside of here that aspire to make their city the “next Silicon Valley”.
There are many attributes that I believe make Silicon Valley unique, but one thing is for sure, it has a massively diverse workforce. If America is a melting pot, then I am living in a blast furnace. Well before the executive order “freezing” immigration from certain countries, this diversity was a well-known differentiation for the Valley.
37% of people living here were born in another country – this is a staggering number compared to 27% in California overall and it is nearly 3 times the national USA average of 13%. Nearly three-quarters of Silicon Valley’s computer and mathematical workers ages 25 to 44 are foreign-born.
I was speaking to my friends and contacts here in Silicon Valley, many of whom were not born here, and they were stunned. They all agreed you need to keep dangerous people out but the vetting for refugees is currently up to two years (and for some a multiple of this) so it is already very robust. I am a green-card holding immigrant and until this last week I felt very secure here. Now, like many thousands of others, that bed-rock was badly shaken.
There are so many American companies that would not be here except for immigrants, encompassing ex-pats, immigrants and refugees (read this for a good definition of the terms). This is something that impacts the whole of America, not just the gilded area of Silicon Valley. 21% of all Inc. 500 CEOs were born outside of the United States and immigrants founded half of U.S. Billion-Dollar Startupsincluding LinkedIn, Tesla, Zipcar, Google, Intel, Yahoo!, eBay, WhatsApp, Uber, Palantir and my favorite, being Irish, Stripe with the Collison brothers as co-founders.
But the effect of immigrants is just so much more marked, recognised and celebrated within Silicon Valley where immigrant founders started 52 percent of all new Silicon Valley companies between 1995 and 2005. Immigrant-founded companies also have a much more global outlook and they are 60 percent more likely to export.
While the current freeze/ban affects 6 mostly Muslim countries it could easily be expanded. It was only one generation ago that the Irish were similarly viewed in the UK and 3 generations ago when the Irish were pariahs in the USA. When just looking at Iran, their immigrants were key to the formation or growth of eBay, Oracle, Google, Expedia, Dropbox and Tinder. Steve Jobs’ dad was from Syria along with the founder of Kinkos and the Match Group (Tinder).
There was a outcry from the Valley but will it be enough to change the hearts and minds in Washington?
The are many reports of an impending review by the White House of many other Visa types including the H-1B and it is this that really scares executives here, especially if it also affects the inter-company transfer visas. It is the ability to readily and easily move people from overseas offices to HQ in Silicon Valley and vice-versa that keep the innovation and growth engine going. It fosters cross-cultural brainstorming, it develops a global view that builds products that can serve a global audience and is a true competitive advantage that will take years and decades to be copied. But it could be killed with just one signature.
As John Collison, an Irish immigrant, and co-founder of Stripe, said “The U.S. is sucking up all the talent from all across the world,” Mr. Collison said. “Look at all the leading technology companies globally, and look at how over-represented the United States is. That’s not a normal state of affairs. That’s because we have managed to create this engine where the best and the brightest from around the world are coming to Silicon Valley.”
But, Mr. Collison added, “I think that’s kind of fragile.” Under Mr. Trump, the immigrant-friendly dynamic could change — and it could bring about the ruin of America.
The Death of Taxes
The seismic impact of the new administration widely expected review of the corporate Tax code is also being felt. I was with friends who are senior tax executives and advisors to major multinationals and they are burning the candle at both ends since the election to be prepared for expected tax rate cuts and a massive reduction in regulations. They are preparing for an era of historically low USA corporate tax rates and a shakeup in current tax treaties. According to my circle, it will make it significantly more (tax) efficient to manufacture in America, especially if they are selling in America. There could be the further incentive to bring a lot of untaxed foreign based income back to the US.
How this will impact cross Atlantic M&A (our specialty) is unclear. It will likely boost the bottom line of America based companies and this is always good for M&A. Most of the major corporations are also throwing off overseas cash at such a steady rate so any offshore cash reduction from a one-time repatriation home will soon be built back up again. The Dollar will also likely appreciate making it cheaper to buy European companies. The current visa uncertainties will also make buying overseas talent more attractive.
All in all, I feel we could be heading for a year of uncertainty, but with very hopeful signs for international M&A.
FirstCapital has been around since 1999 and we have been through major eras of change, uncertainty and opportunity. If you are a growth stage European tech company looking to exit or later stage funding, come and talk to us.