H-1B Visa Costs: Startups Face Biggest Burden

U.S. President Donald Trump’s proposed $100,000 fee on H-1B visa applications is generating significant concern within the American startup ecosystem, with founders and venture capitalists expressing fears of substantial impediments to growth, CNBC has learned.

The H-1B visa program, which allows U.S. companies to employ foreign workers in specialized occupations requiring theoretical or technical expertise – primarily in fields like IT, healthcare, and engineering – has already presented challenges for startups due to annual quota limitations. The proposed fee exacerbates these difficulties.

Desmond Lim, CEO and co-founder of Workstream, a HR, payroll and hiring tech platform, revealed that all of his company’s H1-B applications were rejected in the past year. He characterizes this as “very disappointing,” particularly as he seeks to attract top-tier engineering talent crucial for Workstream’s expansion.

Last year, however, Workstream successfully secured a couple of H-1B hires that Lim described to CNBC as “life changing, both for the employees and for the company.” These hires, he explained, brought specialized skills and perspectives that significantly accelerated Workstream’s product development and market penetration.

“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,” Lim elaborated. The rigorous H-1B process, while demanding, ensures Workstream attracts highly qualified individuals whose expertise directly contributes to the company’s strategic goals.

The introduction of a $100,000 fee per H-1B petition, while details remain scant, is poised to further complicate talent acquisition for startups. The White House’s plan raises significant questions about funding mechanisms and the long-term impact on U.S. innovation, according to industry analysts.

Lim anticipates that the proposed fee would be prohibitively expensive for early-stage companies like Workstream, thereby necessitating adjustments to their recruitment strategies. This could lead to a shift in focus towards less qualified, domestic candidates, potentially hindering product development and competitiveness.

Lim’s concerns are echoed across the startup landscape. Founders and employees on H1B visas are grappling with the potential ramifications of the new fees, fueling widespread uncertainty and anxiety.

Alma, a San Francisco-based legal tech startup providing immigration assistance to professionals and startups, reported a hundredfold surge in inquiries following the White House’s announcement. This dramatic increase highlights the pervasive unease within the startup community regarding the proposed policy.

“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 a $100,000 fee and compete in terms of salaries,” said Alma founder and CEO Aizada Marat. The financial burden, compounded by competitive salary pressures, threatens to disproportionately disadvantage smaller ventures.

Beyond advising companies on H-1B hiring, Alma also utilizes the program to attract talent. This direct involvement provides Marat with firsthand insight into the vital role foreign expertise plays in Alma’s growth trajectory.

“The main problem becomes: is there enough local supply to meet demand if this international talent goes away?” Marat questioned. She emphasized that startups frequently seek out “undiscovered” foreign talent to gain a competitive edge over larger, more established corporations, a strategy that could be undermined by the new policy.

Marat stated that Alma is currently advising clients to exercise caution and await further clarification regarding the H-1B visa modifications before making any drastic changes to their hiring practices. This cautious approach underscores the need for a clearer understanding of the policy’s implementation and potential impact.

Venture capitalists and innovation thought leaders concur that startups will bear the brunt of the H-1B visa fees. The consensus is that the policy will stifle innovation and impede growth within the burgeoning sector.

Alexandre Lazarow, managing partner of Fluent Ventures, argues that a $100,000 fee “disproportionately hurts early-stage startups,” which lack the deep pockets of larger corporations and rely on a global talent pool to scale operations. He pointed out that the fee could force startups to make difficult choices, potentially delaying crucial hires and hindering their ability to compete in the global marketplace.

Lazarow further noted that startups often encounter difficulties sourcing the necessary engineers and specialists domestically and prefer to attract talent through immigration rather than build fully remote teams in foreign countries. The concentration of talent and innovation in the U.S., fostered by the H-1B program, is critical for maintaining its competitive advantage.

Robert D. Atkinson, president of the Information Technology and Innovation Foundation, a Washington, D.C.-based think tank, asserted that even a handful of talented individuals from overseas can be the difference between success and failure for a startup. Their expertise and innovative thinking can propel a company to new heights, creating jobs and driving economic growth.

He also highlighted that foreign talent can assist startups in establishing stronger international networks and expanding their customer base overseas, contributing to their long-term sustainability and global competitiveness. The diverse perspectives and cultural insights brought by H-1B visa holders are invaluable in navigating international markets.

While critics of the H-1B visa program contend that it diminishes job opportunities for U.S. citizens, an unintended consequence of the $100,000 fee could be a broader reduction in entrepreneurship and venture capital funding. This impact extends beyond the direct beneficiaries of the H-1B program.

A 2020 study indicated that startups that hired employees through the H-1B visa process were more likely to secure external funding, go public or be acquired, and achieve innovative breakthroughs. The H-1B program acts as a catalyst for innovation and investment within the startup ecosystem.

Manish Singh, Chief Investment Officer at Crossbridge Capital, told CNBC that 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.” This shift in investment sentiment could have significant implications for the future of U.S. startups.

Singh posited that changes to the visa program could incentivize investors to allocate capital to markets such as the U.K., Canada, and Europe. These regions, he argues, are becoming increasingly attractive destinations for both talent and investment as the U.S. grapples with immigration policy uncertainty.

“U.S. startups may experience reduced funding momentum, while Europe could see a relative uplift in both talent inflows and investor attention,” Singh concluded. This potential reallocation of resources could reshape the global landscape of innovation and entrepreneurship.

Several European markets, including the U.K., have struggled with “brain drain” in recent years, where skilled and educated workers migrate to countries like the U.S. seeking better opportunities. This emigration often stimulates the growth of high-skilled industries and entrepreneurial activity in the recipient countries.

The uncertainty surrounding U.S. immigration policies, including the H1B developments, could represent a crucial turning point for tech talent that has been considering a move to the U.S., experts suggest. The attractiveness of the U.S. as a destination for skilled workers may be waning.

“Talented individuals who once saw the U.S. as the obvious destination are now looking seriously at the U.K. and Europe to build their careers,” said Laura Willming, head of people and talent at Octopus Ventures, one of Europe’s most active venture capital investors. She believes that the shifting landscape may lead to a resurgence in European innovation and economic growth.

The potential shift in talent flows underscores the interconnectedness of global economies and the critical role that immigration policies play in shaping innovation ecosystems. The US needs to ensure it continues to attract top talent to remain a global leader in key technology sectors.