Another factor in Silicon Valley’s foreign-born entrepreneur drain

March 8, 2011, 7:43 PM UTC

Yesterday I got into some Twitter back-and-forth with Vivek Wadhwa, who had written a TechCrunch post about how many foreign-born Silicon Valley entrepreneurs were returning home due to troublesome visa issues.

To be clear, I have no argument with Wadhwa’s thesis, and believe that many of our current visa rules are counter-productive.

But I also believe that there is a second factor that Wadhwa ignores: The maturation of many foreign VC markets — particularly in Asia — has made the return home more palatable for emigrant entrepreneurs.

This plays off an old Vinod Khosla argument, in which he said that many India-born engineers used to believe that the best way to build a tech company of significant scale was to do it in Silicon Valley — because that’s where they had the best chance of getting funded. Last year, however, venture capitalists disbursed more than $3 billion to Indian companies — mostly through in-country funds or fund affiliated.

Wadhwa responded to all this with a pair of points: (a) “VC is a prerequisite for innovation is a myth,” and (b) Most of India’s big companies never raised VC.

Second point first: He’s right, but perhaps that’s because the Indian VC market didn’t really have much traction until recently. We’re talking about startups here, so there is a lag. First point: Obviously it’s not a prerequisite, but it just as obviously can help (particularly if the goal is to scale into something large).

Even if entrepreneurs don’t plan to take venture capital, they might like the peace-of-mind that comes with knowing that it could be available. That didn’t exist for most entrepreneurs in India, China, etc. until fairly recently.

Not an opposing argument… just a complementary one.