USN&WR
Business & Technology 7/10/00

Give us your wired elite!
A new wave of immigrants has come ashore to launch high-tech start-ups

By James Lardner

In the spring of 1997, Vivek Wadhwa was trying to launch a software company
and running into resistance. Based on the reaction in his adopted home of
North Carolina, he concluded that the local investment community wasn't
quite ready for the idea of a bearded young engineer from India as a CEO.
"Rinky-dink venture capital firms wouldn't return my calls," he says. To
make matters even more suspiciously multicultural, two of Wadh- wa's
cofounders-one from Romania, the other from Ukraine-had accents just as
funny as his. And most of his programmers were Russians who had honed their
skills in a KGB-directed attempt to copy 1970s-vintage U.S. military
software.

So the investments were not exactly rolling in, and Wadhwa was sorely
tempted by a job offer at Microsoft. His two sons, Vineet and Tarun, ages 14
and 9, certainly couldn't see a downside to that deal-not after a trip to
Seattle in which the family was put up in adjoining hotel suites and
showered with games and gizmos. "They schmoozed my wife and children like
you wouldn't believe," Wadhwa says.

Global village. Three years later, his sons have long forgotten the trinkets
from their visit to Microsoft country. Widening his search, Wadhwa got the
backing he needed; his company went on to sign major contracts with Charles
Schwab, PaineWebber, and the U.S. Air Force, among other clients, and
expects to generate $10 million in revenues this year, up from $5.6 million
in 1999. And North Carolina, like other states, is getting accustomed to a
degree of international diversity that would have boggled the American
corporate mind not too long ago.

"Give us your most energetic, your best-educated, your ambitious elite
yearning to breathe stock options!" With apologies to Emma Lazarus, that's
where things seem to be headed in America's high-tech fields. To Silicon
Valley in particular, young geeks have come streaming from the far corners
of the world, lured by tales of jobs dropping from the trees and high-flying
IPOs.

A third of the valley's scientists and engineers in 1990 were foreign born,
according to the census of that year; the figure is believed to be
substantially higher today. And like Wadhwa, a remarkable number of
immigrants-Indians and Chinese, especially-have made the leap into the ranks
of company founders and CEOs. Of the 4,063 tech start-ups launched in the
valley between 1995 and 1998, about 20 percent had CEOs with Chinese
surnames, while 9 percent had CEOs with Indian surnames, according to data
collected by Dun & Bradstreet.

Even before the computer revolution, the Asian immigrant population was
unusually well educated. Since 1950, roughly 250,000 ethnic Chinese have
come to America as college or graduate students. The great majority-85
percent of those from Taiwan, for example-have remained stateside, according
to L. Ling-chi Wang, who teaches Chinese-American studies at the University
of California- Berkeley. He considers them, along with the Jews who fled
Europe during the time of Hitler, one of "two great waves of intellectual
immigrants."

Indians, bidding to become the third wave, did not arrive in significant
numbers until the late 1960s, after the passage of an immigration-reform law
that tilted the scales in favor of the skilled. Before the influx of Indian
engineers, many came here to work as doctors, taking hard-to-fill jobs in
rural areas. Last year, Indians claimed about 20 percent of the 115,000
temporary work (or H-1B) visas granted here. The path has become so well
trod that in the cybercafes of Bombay, women in saris can be found dictating
E-mails to their children and grandchildren in places like Tysons Corner,
Va., and Dallas.

Spurring the Indian exodus are role models like Sabeer Bhatia, who has
achieved rock-star status for selling Hotmail to Microsoft for a reported
$400 million. Just as important to the legend is the bravado with which he
turned down a series of lower offers, to the horror of Hotmail colleagues
who expected Microsoft to withdraw from the negotiations in disgust and
launch its own free E-mail operation.

Close call. Many Indian entrepreneurs have turned to an elaborate support
network that has sprung up over the past few years. One of Wadhwa's early
mentors was Vinod Khosla, who cofounded Sun Microsystems before yielding the
CEO's job to the former housemate he had recruited into the company, Scott
McNealy. Khosla, now a partner at the venture capital firm Kleiner Perkins
Caufield & Byers (where, thanks largely to him, some 40 percent of the
portfolio consists of Indian-led or -founded businesses), gave Wadhwa a
crash course in the start-up process. "He told me exactly what the lay of
the land was," says Wadhwa.

One of Wadhwa's cofounders, Len Erlikh, who came to New York City from
Odessa 20 years ago, regards the Indian entrepreneurial community with
wistful envy. Soviet immigrants, he says, are far too shy and cautious to
band together. But that's a fairly new development among Indians and South
Asians. "The India I was brought up in was a dog-eat-dog world," says
Wadhwa. Inspired by the help he got from Khosla and others, he is setting up
a North Carolina chapter of a fast-growing support group known as the IndUS
Entrepreneur.

Starting a risky business venture doesn't come naturally to most immigrants,
either. Two thousand years of the caste system "has not been supportive of
the notion of being a business guy," says Pradeep Singh, who left Microsoft
in 1993 to found a software and tech support company with operations in
Seattle and Bangalore, India. In the traditional Indian hierarchy of
professions, he explains, the Brahman (or priest) comes first, the warrior
comes second, "and the business guy is pretty close to the bottom."

Although the United States has always attracted more than its share of
foreign talent and brainpower, no country has ever pillaged the world's
intellectual resources the way America has in recent years. And yet there's
surprisingly little uproar about it, either here or in the countries that
might see themselves as victims. In the United States, near-full employment
has tempered organized labor's concern. Congress is moving swiftly toward
raising the annual cap on H-1B visas from 115,000 to 200,000, and Federal
Reserve Chairman Alan Greenspan speaks matter-of-factly about immigration as
an anti-inflation device, to be ratcheted up and down along with interest
rates.

Indian politicians have in the past expressed dismay about the high
proportion of students leaving India after graduating from the six-campus
Indian Institute of Technology, which, with a 3 percent acceptance rate, may
be the most competitive university in the world. Similar brain-drain alarms
have been sounded in China, Taiwan, and the nations of Southeast Asia.

But Wang, the Berkeley professor, says it would be wrong to presume that
these nations would be enjoying an entrepreneurial boom themselves if they
had hoarded their talent. If China had not allowed so many students out, "it
would be brains wasted, not brains drained," he argues, because of the less
dynamic business environment there.

Pehong Chen, who grew up in Taiwan, was a research scientist at the Olivetti
Research Corp. before launching the first of two software start-ups. The
second, BroadVision, now has a market capitalization of $10 billion (Chen's
share is worth about $3 billion), and its first 600 employees are
millionaires. "If I had stayed in Taiwan," says Chen,"I would be working for
a semiconductor company."

Eurogeeks. Although Asians are much more numerous, American tech companies
have also attracted significant numbers of Australians, Israelis, and Irish,
as well as other Europeans. Many of them make a similar point about the
opportunity gap between this country and their homelands. "Until very
recently, it was legally almost impossible to give stock options in
Germany," says Gregor Freund, a German émigré who runs a small security
software company, Zone Labs, in San Francisco. "The whole reward system is
screwy there."

Yet like other immigrant CEOs, Freund has tried to blend the practices of
both societies. In the typical Silicon Valley start-up, the ethos demands so
much work that "in order to have a break, you almost have to quit," he says.
Zone Labs gives German-style, four-week vacations and encourages employees
to go home at nightfall. "We want people to have a life," Freund says.

Other countries are also benefiting from this sort of cross-cultural
fertilization as a growing number of immigrant entrepreneurs launch tech
ventures back home. In Taiwan, U.S.-style start-ups and venture capital
firms are proliferating, according to Peter Chu, a former Oracle
engineer-turned-venture-capitalist. "If you were to look at the Fortune 100
equivalent in Taiwan 10 years ago," he says, "not a single technology
company was among the top 100. Today, over half of them are technology
companies."

A similar process is at work in China, fueled, to a large extent, by the
diaspora of ethnic Chinese living in other Asian nations as well as in the
United States. These emigrants are estimated to have invested between $40
billion and $50 billion in their mother country.

Wadhwa's company, Relativity Technologies, is an experiment in
Indo-Russo-American collaboration. Erlikh, the chief technology officer,
spoke next to no English when he arrived in New York. He got through his
first semester at Baruch College by translating the textbooks word for word
with a Russian-English dictionary. To his great relief, there turned out to
be only about 600 words in the standard business-textbook vocabulary.

While working for Wadhwa at First Boston in the late 1980s, Erlikh sold him
on the idea of a trip to Russia in search of underutilized computer talent.
The business conditions they found there were dreadful: "No American in his
right mind would invest here," an American-born colleague on the trip
declared.

Another Einstein. But Wadhwa was fed up at the time with the work he was
getting from several U.S. subcontractors: You presented them with a problem,
he says, and they would always say they could solve it-just to get the
contract. In St. Petersburg, he met Andrey Terekhov, the head of a Soviet
software team who is "the closest thing I've seen to an Einstein." When
Wadhwa laid out his problem, Terekhov and a couple of colleagues spent three
hours considering it and came back with a credible plan of action. "He was
the first one who said yes for the right reason," Wadhwa says.

The allure of the United States may be fading just a little as it becomes
more practical to do "world-class work" from anywhere. At IIT's Powai
campus, the proportion of emigrating grads has fallen from an estimated 50
percent to 30 percent over the past few years. A similar pattern has emerged
in Taiwan, where the government has been furiously opening new universities
and research institutes to stem the exodus-and paying giant salaries to
emigrants who return to teach.

In the United States, meanwhile, conditions have come to a pass that Kazi
Hasan, a venture capitalist who came here from Bangladesh in the 1970s,
never expected. In those days and for long afterward, he says, there was an
active "rent-a-WASP" program for immigrants seeking venture capital backing.
Now, an Indian CEO is actually a plus, at least in the dot-com world.
"Twenty years ago, I wouldn't have imagined that I would see this in my
lifetime," he says.

© U.S.News & World Report Inc. All rights reserved.