Brain Drain or Capital Gain? Immigrant Entrepreneurs as Pathways to Cross-Border Venture Capital
We show that the migration of individuals who become entrepreneurs in the receiving country, which often raises concerns of brain drain, subsequently results in ‘capital gain’ for the sending country in the form of venture capital (VC). We find that U.S. VC firms that invest in Indian immigrant entrepreneurs in the U.S. subsequently invest more in Indian startups—in the exact region where the immigrants are from and with a lower likelihood of using a local co-investor. We observe these effects only for first-generation immigrant entrepreneurs, who have direct knowledge and connections in India, but not for later-generation ethnic Indian entrepreneurs. The impact of immigrant entrepreneurs on investments in India increases with the number of ethnic Indian partners (second or later-generation) in the VC firm.