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How Immigration Uncertainty Threatens America’s Tech Dominance

Even before last Friday's executive order on immigration, lawyers told Tim Wilson not to bother hiring a Vietnamese national—an expert in “nanoscale structured material”—for a Silicon Valley startup.

The reason? Given the uncertainty around immigration policy under President Donald Trump, it was better to wait, they said.

“What ultimately happened was their prediction turned out to be the chaos we saw this week,” says Mr. Wilson, a partner at venture-capital firm Artiman Ventures.

The executive order focused on blocking immigration from seven countries with the intention of preventing terrorism in the U.S., triggering anxiety and, in some cases, legal action among tech companies whose employees were affected by the new rules.

Many tech executives also worry that the order could presage other policies that would make it harder to hire skilled immigrants—not least because of Mr. Trump’s frequent criticism of U.S. companies that employ foreign workers. Indeed, a draft executive order proposes re-examining how the government issues H-1B visas for skilled workers—a system used frequently by tech firms. (Mr. Trump could ultimately choose to modify the draft or abandon the order entirely.)

Venture capitalists, executives and engineers I spoke to consistently made the same argument: In 2017, politicians who try to unduly impede the free movement of tech workers stand to deprive their home country of revenue and employment, as well as all the additional support, service and administrative jobs each of those highly paid workers creates in a community.

The argument is partly driven by self interest: These companies hire foreign workers.

But it is also a logical one. Technology that enables remote work has the potential to turn startups into multinationals. And larger companies have offices, employees and revenue spread across the world, and can shift resources, intellectual property and talent virtually anywhere.

The biggest loss from excessive or capricious restrictions on immigration would ultimately be the loss of the community of best-in-the-world minds that coalesce in a tech hub like Silicon Valley. That culture can’t be replaced or reproduced solely with native talent. (Imagine, for example, if the U.S. had refused to use foreign scientific and engineering talent when building the first atomic bomb.)

That talent may not wait around for the U.S. immigration picture to become clearer. The world is now littered with startup ecosystems and tech hubs outside of the U.S. and Silicon Valley, says Mr. Wilson.

Take Canada, for instance. Past issues with U.S. immigration laws pushed Microsoft to open a satellite office in Vancouver in 2007, explicitly as a place for engineers it wanted to hire but couldn’t get into the U.S. In 2009, Bill Gates held up Microsoft’s Canada office as an example of how limits on the number of H-1B visas in the U.S. threatened America's pre-eminence in tech.

A spokesman for Microsoft says that, while immigration laws haven’t been a primary driver of the company’s investment in Canada, they’ve certainly been a contributing factor.

Microsoft is hardly alone—Apple, Google, Facebook, Cisco and dozens of other large U.S. tech companies have established offices in Canada for the same reason they build them all over the world: Tech talent is so valuable that when companies aren’t able to get it to come to them, the companies will go to the talent.

Canada has long had a huge supply of engineering talent. The University of Waterloo, for example, is behind only MIT, Stanford and Berkeley—and ahead of Harvard, Carnegie Mellon, Cornell and many others—in the number of its alumni represented among founders of Y-combinator-backed companies. The problem, says Canadian venture capitalist John Ruffolo, was that in the past this talent always left for the U.S.

That is happening less as Canada has built up its startup ecosystem with an influx of risk capital and various incubators and accelerators. The country is also experiencing a wave of reinvestment in terms of both money and mentorship from homegrown successes, including Shopify, currently valued at $4.5 billion. The country’s skilled-worker-friendly immigration laws and reputation for tolerance and multiculturalism are also helping it to attract people who would otherwise have gone to the U.S., says Mr. Ruffolo, who is head of Canada’s largest venture-capital fund, Omers Ventures.

The U.S. still has enormous advantages over other tech hubs. “I’m very disappointed in the last week, but I’m not going to short the U.S.,” says Jason Lemkin, a VC and managing director at SaaStr Fund.

Total venture-capital investment in the U.S. in 2015 was more than 20 times that in Canada. Silicon Valley has an unmatched combination of entrepreneurial culture and strong networks of senior-management talent and engineers with specialized skills. But as companies become more mobile, that dominance could be threatened.

“Frankly, one-third of our company is in the U.S. on H-1Bs or green cards,” says Ben Waber, chief executive of Humanyze, a startup of 21 people that is growing its head count at the rate of four high-wage jobs a month. Humanyze helps some of the largest companies in the world optimize the way employees work and generates significant amounts of intellectual property for itself, in the form of both software and hardware, in the process.

Mr. Waber’s biggest concern is that the Trump administration will do something that directly impacts one of his employees, perhaps by altering the country's system of H-1B visas. Through a lottery, the H-1B system grants 65,000 visas per year for high-skilled workers. The system has long been the target of both politicians and would-be reformers in the tech industry.

Mr. Waber was the only person I’ve talked to who would go on the record with the full force of his fear and anger, but I can tell you it isn’t atypical among both leaders and the rank-and-file in the tech community.

As a result of Friday’s executive order, “I guarantee you we are going to hire fewer people here and more people in other countries,” says Mr. Waber.