It is hard to overstate the importance of international talent for the success of an/our entrepreneurial ecosystem. Our recent report, Job Creators: The immigrant founders of Britain’s fastest growing companies, is strong evidence. We found that 49% of Britain’s fastest growing startups – companies like Deliveroo, Monzo, and Gousto – have at least one immigrant co-founder. Our data fits with past research from AnnaLee Saxenian, which found that over half of all Silicon Valley engineering and technology companies had at least one immigrant founder.

But that’s not the whole story. Job creators deserve credit, but so do the talented managers, engineers, and product designers who actually do those jobs. When I speak to founders at fast-growing tech startups, they will typically tell me that the biggest barrier to more growth isn’t access to finance or consumer demand, but a lack of access to talent.

A new US study, Give Me Your Tired, Your Poor, Your High-Skilled Labor: H-1B Lottery Outcomes and Entrepreneurial Success, highlights how access to skilled talent is crucial to a startup’s success. The study exploits the lotteries used to allocate H-1B skilled worker visas to businesses. In economics, we typically can’t conduct randomised controlled trials on immigration policy, but the H-1B lottery, while arguably a bad way to allocate visas, creates a natural experiment that allows us to see just how important access to talent.

The researchers found:

Relative to other firms that also applied for H-1B visas, firms with higher lottery win rates are more likely to receive additional venture capital funding and to have a successful exit via an IPO or acquisition. H-1B visa lottery winners also subsequently receive more patents and patent citations. Overall, our results show that access to high-skill labor is a critical determinant of success for start-up firms.

The results are stark. A 1 standard deviation increase in the H-1B visa lottery win rate for a company is associated with a:

1.5pp (23%) increase in the probability of IPO.
4.5pp (10%) increase in the probability of receiving additional external funding.
2.9pp (20%) increase in the probability of a successful exit over the next five years.
4.8% increase in the number of patents filed and a 4% increase in quality adjusted of patent citations.

If policymakers want British startups to succeed they need to recognise the importance of accessing skilled workers. Recent moves such as the reinstatement of the post-study work visa and adding roles such as software developer to the shortage occupation list will help, but we need to go further.

Plans to end free movement and impose a £30,000 minimum salary on all new arrivals will damage the UK’s entrepreneurial ecosystem. At the very least, the plans should be amended to take into account the preference of early-stage startups to pay workers in equity.

If Britain is to be truly ‘open for business’ then we must be open to talent.

If you’re an entrepreneur and want to discuss the impact of Brexit on the immigration system, then why not come to our upcoming breakfast roundtable at Kingsley Napley - “Britain Needs Talent: What Next For Entrepreneurs”.