U.S. President Donald Trump’s plans to place $100,000 fees on H-1B visa applications will disproportionately harm America’s startup space, founders and venture capitalists told CNBC this week.
H-1B visas — which allow companies to temporarily hire foreign workers in skilled occupations such as IT, healthcare and engineering — were already difficult to secure for U.S. startups, due to limited annual quotas.
Over the past year, Desmond Lim, CEO and co-founder of HR, payroll and hiring tech platform Workstream, said all of his startup’s H1-B applications had been rejected — something he called “very disappointing” as he tries to secure more top engineering talent.
The year prior, however, Workstream did secure a couple of H-1B hires that Lim told CNBC were “life changing, both for the employees and for the company.”
“As an early-stage startup, every hire is precious, and we only choose the best to go through the H-1B program, because it not only costs money, but also takes time,” he added.
Now, securing this talent is set to become even harder. The White House plans to require companies to pay a $100,000 fee when submitting petitions for new H-1B visas, though many details remain unclear.
Lim said the fee would be too high to justify for early-stage companies like his, complicating recruitment strategies.
Uncertainty and panic
Lim’s not alone in his concern — startups across the country, along with workers on H1B visas, have been left worrying about the implications of the new fees.
Alma, a San Francisco-based legal tech startup that provides immigration advice to professionals and other startups, told CNBC it had seen a 100x spike in inquiries since the White House’s declaration on Friday.
“Over the past couple of days, clients have been scared and anxious, because the size of their companies suggests that they won’t be able to pay $100,000 and compete in terms of salaries,” Alma founder and CEO Aizada Marat said.
Alma not only advises companies on hiring H-1B talent, but also hires candidates under the program itself.
“The main problem becomes: is there enough local supply to meet demand if this international talent goes away?” Marat questioned. Startups often rely on finding “undiscovered” foreign talent to gain an edge over larger competitors, she added.
Marat said she had been advising companies to wait for more clarity on the H-1B visa changes before altering hiring strategies.
Startups hit hardest
Venture capitalists and innovation experts agreed that startups will be hit hardest by H-1B visa fees.
A $100,000 fee “disproportionately hurts early-stage startups,” as they lack the resources of large incumbents to absorb the cost and rely on global talent to scale, Alexandre Lazarow, managing partner of Fluent Ventures, told CNBC in an email.
He added that startups often struggle to hire the engineers and specialists they need locally, but choose to import talent through immigration, rather than building remote teams outside the country.
Meanwhile, Robert D. Atkinson, president of the Washington, D.C.-based Information Technology and Innovation Foundation, argued that just a few talented employees from overseas can often be a deciding factor in a startup’s success.
Foreign talent can also help startups establish stronger overseas networks and customer bases, he added.
Less venture capital?
Opponents of the H-1B visa program argue that it removes job opportunities for U.S. nationals. But an unintended consequence of the $100,000 fee could be a reduction in entrepreneurship and venture capital funding more broadly.
A 2020 survey found that startups hiring workers through the H-1B visa process were associated with an increase in the likelihood of obtaining external funding, going public or being acquired, and of making innovative breakthroughs.
Now, the new fee could “dampen PE and VC appetite for early-stage U.S. names that rely heavily on H-1B workers, many of whom may now look abroad to secure their careers rather than risk further uncertainty in the U.S.,” Crossbridge Capital’s Chief Investment Officer Manish Singh told CNBC in an email Monday.
Singh added that changes to the visa program could instead create a stronger case for investors to deploy capital into markets such as the U.K., Canada and Europe.
“U.S. startups may experience reduced funding momentum, while Europe could see a relative uplift in both talent inflows and investor attention,” he added.
Brain drain reversal?
Many markets, including in Europe, have been reporting problems with “brain-drain” in recent years, referring to a phenomenon where skilled and educated workers emigrate to seek better opportunities in countries such as the U.S.
This movement is often associated with the development of high-skilled industries and entrepreneurship in the receiving country.
Now, uncertainty surrounding U.S. immigration, including the H-1 B development, could be a real turning point for tech talent that has been on the fence about moving to the U.S., said Laura Willming, head of people and talent at Octopus Ventures, one of Europe’s most active venture capital investors.
Talented individuals who once saw the U.S. as the obvious destination are now seriously considering other markets, such as the U.K. and Europe, to build their careers, she added.
— CNBC’s Hugh Leask and Ernestine Siu contributed to this report