What the UK can do to stimulate entrepreneurship amongst its foreign students

Universities in the UK are turning out more entrepreneurial-minded students than ever before, eager to cement themselves in the international business community. With SMEs contributing to 51% of UK GDP, it’s widely accepted by academics, industry leaders and policy makers including David Cameron that “the future of [the UK] economy depends on a new generation of entrepreneurs coming up with ideas”. Why then is immigration legislation limiting one such source of entrepreneurship; UK-educated, foreign-born graduates who want to stay on after their studies to establish new business? What is the government doing to overcome this hurdle, circumventing international graduate entrepreneur talent drain?

The answer by the Home Office was the introduction of the Tier 1 Graduate Entrepreneur Visa,  a policy mechanism meant to retain young entrepreneurs. However, given the visa’s low uptake, where only 66 of 1,000 visas were issued last year, the process by which this visa is granted must be revaluated in terms of its application process, eligibility requirements and allocation quotas.   

The state of international students in the UK

Universities in the UK have been successful at recruiting top international talent; the 2011-2012 graduating cohort included 302,680 non-EU/UK students, representing 12.1% of students in higher education. The benefits of this multiculturalism extend far beyond that of campus life and knowledge exchange, and resonate in the social and economic fabric of the UK. However since the enactment of new stringent immigration reforms in 2010, the UK has experienced a 22% decrease in their foreign student body. This may be due in part to the new points-based immigration system, preventing international students from working in the UK post-studies unless sponsored by an employer capable of financing a work visa.This added bureaucracy may be depressing some students’ willingness to invest in a UK education, given the accompanying uncertainties of employment post-graduation.

While there may be validity in maintaining career opportunities in the domestic labor force for UK and EU citizens, this reasoning doesn’t extend to graduates who wish to remain in the UK as entrepreneurs. Indeed, entrepreneurs spur innovation, invent novel processes, create systemic disruptive technology advancement and directly add jobs, skilled labor and training to the economy. So what is being done to incentivize and encourage these students to stay in the UK and contribute to the economic advancement of the nation?

The Tier 1 Graduate Entrepreneur Visa

With the objective of motivating foreign graduate entrepreneurs to remain in the UK, the Home Office has made available 1,000 Tier 1 Graduate Entrepreneur Visas. The application process is straightforward, in that prospective recipients must apply to their respective university with a viable business plan within 12 months of graduating. Each university is granted up to 20 visa endorsements; 10 for MBA students, and another 10 for non-MBA applicants (subject to maintenance fees). After a feasibility review by the university, these ambitious students are granted visas.

But uptake of the scheme remains poor

With 0.7% of new graduates choosing to start their own business out of university, intuitively, 1,000 visas should satisfy this young entrepreneurial demand.  In the first six months of 2012 where the Tier 1 Graduate Entrepreneur Visa was available, only eight visas were allocated by the Home Office. In the following first quarter of 2013 this number rose to 66 . The allocation is expected to rise continuously.

Demand for the Tier 1 Graduate Entrepreneur Visa appears uneven among the innovation trifecta of UK institutions responsible for 21% of startups and spinouts, namely Imperial College, the University of Oxford and the University of Cambridge. While these universities collectively hold 30 visas meant for allocation among their non-MBA student cohort, each has yet to fill their respective quota. There appears to be a disconnect, where the amount of business plan submissions for this visa exceeds supply, yet the number of successful endorsements resides far below the application rate, creating an unused surplus of visas. The University of Cambridge, the largest tech-hub outside of London, notes that a potential reason for the low uptake of these visas is simply a reflection of the limited opportunity of students able to “reach the criteria of developing genuine and credible business ideas and entrepreneurial skills”. Therefore, when appraising a student’s business plan, universities, as the endorsing authority, have no choice but to maintain selectivity among candidates. Indeed, this is reinforced by the amount of recent graduates opting for traditional corporate-focused employment, eager to cultivate their personal and professional networks, gain industry-specific knowledge, and pay off student loans before deciding to dive into the entrepreneurship pool.

In the short and medium-term the current number of visas is adequate; however as the visa gains in popularity the Home Office may re-evaluate the appropriateness to address the demand.  

The Practicality of the Tier 1 Graduate Entrepreneur Visa

The decision by government to create a visa meant to facilitate the transition from student to entrepreneur is strategic and does serve the purpose of retaining graduate entrepreneurs. However, upon closer inspection, there remain fundamental limitations in the system by which these visas are awarded.

• Eligibility Restrictions: Prospective applicants must apply for the visa with an accompanying business plan within 12 months of graduating. While half of entrepreneurs are between the ages of 25 and 44, evidence demonstrates that “older age is a predictor of entrepreneurial success”.  Indeed, most young graduating students haven’t had the time to develop business acumen or accumulate industry knowledge. This restricted time-requirement in applying for the visa may be too narrow in scope, limiting the amount of successful entrepreneurial ventures. 
• A Focus on the Individual: Startups tend to have not one, but many founders with varied skillsets. And the collaborative nature of the startup community focus’ on small teams, not individuals. The application for the Tier 1 Graduate Entrepreneur Visa is unaccommodating to a group of entrepreneurs, stipulating that a single individual apply for a single visa independently, even if a business plan is shared and the entrepreneur is a co-founder. The redundancy of each team member applying individually can create inefficiencies in the distribution process, and may decrease the number of new businesses assisted by the visa.
• Equal Allocation among Universities: Should an individual attend a university with a large proportion of STEM students, or a greater international student body, the implication suggests the competitiveness of this visa is not equitable across the compendium of UK universities.

Where do we go from here?

A number of amendments could be instrumental in recapturing some of this talent.

• The scope of the Tier 1 Graduate Entrepreneur Visa should be extended, allowing for the application and eligibility of university alumni up to five years post-graduation. This would at once allow perspective entrepreneurs to pay off student loans and accumulate needed capital, while increasing their industry-specific knowledge base and professional network. Furthermore, as age is one indicator of entrepreneurial success, this would increase the likelihood of a startups economic prosperity and sustainability.
• Modify the visa to reflect the collaborative and team nature inherent entrepreneurship, rather than focusing on individual applications. Emphasis should be placed on small teams and groups of co-founders; a partnership rather than a single proprietorship. In this capacity the application process could allow for up to three students to apply on any one business plan, elevating quota limitations and increasing the output of value-adding business.  
• Create a refined and representative distribution model where universities with a large international student body or a high concentration of STEM graduates have access to a proportionally greater number of visas.
• Create support programmes to increase awareness and competitiveness, ensuring high quality applicants apply and attain visas. 

UK universities have had great success at turning out world-class talent, however to reap the benefit for the economy, these students must be retained and incentivized to remain in the UK to create value-adding businesses. International talent drain is an epidemic in the UK that’s expected to continue should immigration legislation not be relaxed. Young, inspired and motivated entrepreneurial graduates are out to positively impact the world, and it would be a shame for the UK to miss out on such potential.