Start-Up Visa (Blog Post)
Starting an American “Start-Up” Visa
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In the absence of meaningful immigration reform passing through Congress, President Obama has been announcing rule changes via executive orders or specific department regulations since 2014. On August 26, 2016 the Obama administration unveiled a new proposal that included provisions for immigrant entrepreneurs. The Department of Homeland Security proposed the “International Entrepreneur Rule,” nicknamed as a “start-up visa”, with the intention of aiding foreign entrepreneurs to stay or remain in the United States. After a 45 day period when the public can comment on the proposal, which has now passed, issues will be addressed by the DHS and the Rule could be implemented by the Federal Register as early as next January.
OVERVIEW
As it is currently proposed, the International Entrepreneur Rule would allow The United States Citizenship and Immigration Services to grant parole to individuals on a case-by-case basis. First-time applicants will need to show that they own 15% of a start-up company and play a prominent role, that the start-up company was created in the US no more than three years ago, and that the company has potential for significant growth and job creation. Additionally, the company will need $345,000 in venture capital funding from investors with “established records of successful investments” or at least $100,000 from certain government funding. Entrepreneurs may still apply if they do not meet these standards, but then they must show that they have the potential for rapid growth and will contribute to the public good. If accepted, foreign entrepreneurs (and dependents upon application) will be granted a two year stay in the US.
After two years passes, entrepreneurs may apply to extend their stay for an additional three years. To qualify for an extension they must prove that the company still qualifies as a start-up and that they still have significant stake in the company (10%). Companies must also satisfy one of the three of the following qualifications: receive additional qualified investment resulting in a total investment of $500,000, or achieve an average growth of 20% and generate an annual revenue of $500,000, or create 10 full-time jobs (defined as 35 hours a week or more) for citizens or permanent residents.There is no extension after the first; the hope is that the entrepreneur can move to a different visa or obtain a greencard.
ANALYSIS
Many in the space of technology and entrepreneurship praise the proposal as a step in the right direction . However, the actual impact it will make on supporting entrepreneurs and their fledgling start-ups is questionable. The DHS estimates that 2940 entrepreneurs will be affected if the rule is enacted, but what kind of entrepreneurs? The stipulations attached to the rule are very difficult to overcome. For one, the level of investment is quite extraordinary. Many skeptics of the rule as is point to the fact that Y Combinator, widely considered the world’s best start-up accelerator, only offers $120,000 in investment funding. Yet, companies are expected to have at least $345,000; furthermore, that money must come from investors with a record of repeated investment successes. Some proponents of an initiative like this worry that there simply won’t be a reputable investor to provide that much in funding or that a group of investors that can fulfill the requirement won’t all have the necessary experience.
Another criticism of the proposed rule is that it will not actually draw outside talent to the US. While the visa would be open to anyone wishing to stay or enter the US, the requirement that the company must have been founded in the US while the applicant has a significant role in the company essentially narrows down the pool to those already in the US who are just asking for a new visa to permit them to stay. Thus, the visa may help keep entrepreneurial talent here while failing to attract new recruits.
Lastly, there is an issue of time. In its current proposed form the visa can only be renewed once, with the hopes the applicant can move to a different visa category altogether, meaning that an entrepreneur can only stay a maximum of five years. Combined with the high levels of investment required for initial application and renewal, this may put a heavy strain on start-ups. TechCrunch puts the average time of an “IPO-track start-up” at about seven years, although many can take up to 10 or so years. Ultimately, this poses as an additional risk to potential investors because there is a possibility that a company, or at least key members of it, could be kicked out of the US. For these reasons it is likely that the impact of this version of a US start-up visa will be limited. There is a strong possibility that the majority of recipients will be those already in the States and who have a core team filled mostly with native citizens (in case parole is denied or five years expires so that the company can live on).
HOW WE COMPARE TO OTHER COUNTRIES
The United States is not the first to propose a start-up visa; many other countries have established their own different processes, including the United Kingdom and Canada.
The UK allows individuals wishing to set up or take over a business within its borders to apply for a “Tier 1 (Entrepreneurship) Visa” which grants them a stay of 3 years and 4 months. The visa can be extended for up to two more years after which an entrepreneur can apply for settlement, or an indefinite leave to remain. The UK’s financial requirements for applicants are more flexible in terms of both sources and amounts of funding. Additionally, the UK start-up visa does not require that applicants start the business themselves and play a significant role. Instead, intention of setting one up or even taking another over is enough. Lastly, the UK process grants entrepreneurs greater security in their immigration status. There is a more streamlined process for people to apply for settlement after their 5 year and 4 month stay expires. Overall, it seems that the UK system focuses more on entrepreneurship as a general theme than start-ups specifically and as a result has easier eligibility requirements.
In contrast, Canada’s “Start-Up Visa Program” is very focused on start-ups which reflects itself in the eligibility requirements. Canada has created a list of “designated organizations” that applicants must obtain at least one letter of support from. Additionally, a company must be accepted into at least one of the designated Canadian business incubators. The Canadian government accepts funding from designated Canadian venture capital firms or designated Canadian angel investor groups. Additionally an applicant must own 10% of voting rights and combined with the designated organization own over 50% of the voting rights. It is clear that Canada seeks to attract innovative talent by tying them to government-approved Canadian entities to facilitate the establishment and long-term success of their business in Canada.
These requirements seem to aim to ensure a Canada-centric business model, although a consequence could be that it only increases the difficulty in obtaining such a visa. However, the reward, if admitted, is significant. Canada will reward those accepted with permanent residency, even if their business eventually fails. Thus, there is no risk of being kicked out of the country while in the midst of work nor any pressure to achieve certain growth measures in a restricted time period.
So, while Canada imposes arguably harsher restrictions to meet eligibility requirements -- funding from only approved sources and required acceptance into an incubator -- that limit the pool of applicants, it also offers greater security. Permanent residency even if the start-up is unsuccessful is a comforting fact to entrepreneurs; above all they have immigration security. In contrast, the American proposal similarly imposes high-level requirements but does not offer a level of immigration security that corresponds to those difficulties. Perhaps if the Obama administration, and in general American lawmakers, want to retain the stringent requirements than they should look into offering greater security to compensate for the fact that the applicant pool will be limited to already high-achieving firms.
CONCLUSION
The Obama Administration's proposal is surely a move to advance the President’s immigration revisioning, but the total effects of the rule as is seem questionable. The eligibility requirements are so stringent and the time period allotted by the visa is so short that there is a reasonable claim that not much will change at all. This will be appeasing to critics and disheartening to opponents as essentially the status quo will carry on. Although the DHS and USCIS will respond to public comments, and perhaps some of these concerns, soon it is unlikely that President Obama can do more without congressional approval. The dead-locked Supreme Court knocked down the President’s other executive orders on immigration, specifically those dealing with undocumented immigrants. If Congress remains as stagnant as it has been, then there may be little hope of any legislation to create a truly meaningful start-up visa.
References
See google doc.
