International Entrepreneur Rule Archives

Entrepreneurship Weekly Roundup: 2/17/17

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

The International Entrepreneur Rule: The US Startup Visa

Ramee Saleh, Research Assistant, McNair Center for Entrepreneurship

During the last days of the Obama Administration, the United States Citizenship and Immigration Services (USCIS) passed the International Entrepreneur Rule. The legislation intends to attract international entrepreneurs to the U.S. by granting them “discretionary parole.”

Under the rule, entrepreneurs can apply for temporary five year visas, as long as they partially own a startup that has received at least $250,000 in VC funding from “established U.S. investors” or $100,000 from “government entities.” If a startup fails to meet these funding requirements, the applicant must prove that a “significant public benefit” would result from the his or her entry into the United States. Due to the strict standards, the Department of Homeland Security estimates the program to admit only 2,940 entrepreneurs annually.

Scheduled to go into effect July 17, the International Entrepreneur Rule is still subject to change by any reforms to the H-1B visa program by the Trump Administration.

With $6B in Deals in 2016, ID Management Is a Hot Sector You May Have Missed

Joanna Glasner, Contributor, TechCrunch

In 2016, startups involved in identity management collectively claimed over $6 billion in acquisitions from private equity buyers. Identity management startups also experienced successful funding rounds, raising over $200 million from VCs. These startups are responding to a growing need for improvements in health care IT and authentication. Last year,ECRI Institute, a global nonprofit focused on patient safety, listed “patient identification errors” as the second most important safety concern for health care organizations.

TechCrunch’s Glasner highlights tech unicorn Otka, an identification management and authentication platform provider, that has raised over $200 million from VCs. Otka is considering going public this year.

Lawmakers Try to Stop State-Sponsored Retirement Plans

Anne Tergese, Reporter, The Wall Street Journal

Last week, Republican Congressmen introduced measures to prevent small businesses from automatically enrolling employees in state or locally sponsored retirement plans. The bill comes as several states have enacted retirement savings programs that automatically deduct earnings from employee’s paychecks for deposit into individual retirement accounts.

These programs only affect residents who do not have access to a workplace retirement plan; AARP estimates that this number stands at 55 million people nationwide by. AARP executive vice president Nancy LeaMond has publicly stated that Congress should take steps to support, rather than end, these state savings programs.

Supporters of the bill believe that state-sponsored retirement plans “discourage small businesses from offering private-sector plans” by forcing employees “into government-run plans with fewer protections and less control over their hard-earned savings.”

Banks Are Finally Sprouting Anew in America

Rachel Witkowski, Reporter, The Wall Street Journal

In the past few months, the Federal Deposit Insurance Corporation received the greatest volume of applications for “startup banks” since the financial crisis.The increase reflects an improving economy and expectations for future deregulation of the financial sector.

Startup, or “community,” banks are traditionally viewed as banks that hold less than $1 billion in assets. According to Q3 FDIC data from last year, community banks are responsible for 43% of loans to small businesses. The Wall Street Journal’s Witkowski reports that many community bankers believe that “the decline in the number of banks has led to fewer lending options for startups and small businesses.” Supporters of deregulation believe that greater numbers of community banks spur economic growth and job creation.

Don’t Panic Labs Pioneers “Dev-for-Equity” Model to Help Startups

Christine McGuigan, Reporter, Silicon Prairie News

Don’t Panic Labs is an offshoot of the engineering arm of successful VC fund, Nebraska Global. Don’t Panic Labs adopts a “dev-for-equity” model, assisting startups and entrepreneurs with software and product development in return for company equity. The firm also provides software development services for publicly traded companies that do not require capital investment.

Despite serving established companies, Bill Udell, Integrator for Don’t Panic Labs, told Silicon Prairie News that the firm’s “DNA is in creating startup companies.” In 2016, the firm poured $396,000 of dev-for-equity investment into startups. Don’t Panic Lab focuses on product development and training for its clients’ in-house software engineers.

PitchBook Brings Company Financial Data to Its Mobile App

John Mannes, Writer, TechCrunch

MorningStar, Chicago-based investment research and management firm, acquired PitchBook in 2016. Pitchbook is an industry leader in providing investors with up-to-date coverage of VC, PE and M&A transactions. According TechCrunch’s Mannes, PitchBook, although known for its comprehensive coverage of tech firms, is also increasingly expanding its database to include coverage on non-tech companies as well.

PitchBook recently announced plans to add financial data for 226,000 private companies to its mobile app. The update will provide the database’s 7,000 active members with previously unavailable insight into the financials and revenue figures of private companies.

And in startup news…

Ford to Invest $1 Billion in Artificial Intelligence Start-Up

Mike Isac, technology reporter based in The Times’s San Francisco bureau, and Neal E. Boudette, Reporter, The New York Times

Many automakers are hoping to achieve some of the success that many Silicon Valley startups have found by investing in autonomous vehicle technology and ride-hailing services. Ford recently announced that it will invest $1B in Argo AI, startup focused on utilizing artificial intelligence to develop self-driving cars. Mark Fields, president and CEO of Ford, told reporters last week that the automaker hopes to become “part of the ecosystem of Silicon Valley.”

With the rise in popularity of “mobility services,” car ownership is growing increasingly unnecessary for consumers living in urban centers. Ford’s move suggests an industry-wide shift in strategy, as traditional automakers must adapt to shifting consumer attitudes. For instance, last year General Motors invested $500 million in ride-hailing startup, Lyft, and acquired Cruise Automation, a startup geared toward developing roadway technologies that support autonomous vehicles.

Fields explains the motives behind Ford’s investment: “If we can combine the best of a start-up and marry that with proper equity compensation, then that’s the best of both worlds.”

The International Entrepreneur Rule: The US Startup Visa

The Obama administration proposed new provisions for immigrant entrepreneurs in August 2016. The administration designed the proposal to attract international entrepreneurial talent to the United States, especially in advanced technology fields. In mid-January, with only days left in President Obama’s term, the United States Citizenship and Immigration Services (USCIS) finalized the details of the “International Entrepreneur Rule.” It is scheduled to go into effect on July 17, 2017. Whether it goes into effect will depend on President Trump’s immigration plan, which may see changes in the current H1-B visa program.

Overview

The International Entrepreneur Rule would allow USCIS to grant discretionary parole to international entrepreneurs for two and a half years . However, entrepreneurs may struggle to qualify for a parole grant unless they are already involved in a successful venture. The rule states that first-time applicants must own at least 10% of a U.S. startup that is less than five years old and play a significant role in its management.

Applicants must also demonstrate that their startup has high potential for growth and job creation. The two main avenues for satisfying this criterion are demonstrating that the company has received $250,000 or more in venture capital from “established U.S. investors” or at least $100,000 or more in funding from government entities. Applicants that do not meet these standards may still qualify if they can demonstrate “significant public benefit that would be provided by the applicant’s (or family’s) parole into the United States.”

After their initial parole is over, entrepreneurs may apply to extend their stay for an additional two and a half years. In order to receive an extension, entrepreneurs must show that their startups have “shown signs of significant growth.” A total of two parole grants is the maximum; there are no further extensions. If entrepreneurs wish to stay longer, they must find another method to secure a visa or a green card.

Analysis

When this rule was originally proposed by the Obama administration, it received early praise; Tim Ryan, the co-founder of Startup San Diego, applauded the proposal as a step in the right direction.

However, government agencies only expect this rule to impact a very limited number of entrepreneurs. The Department of Homeland Security estimates that a mere 2,940 international entrepreneurs will qualify annually. DHS also estimates they will bring approximately 3,234 dependents and spouses. In contrast, the USCIS approved 85,000 H1-B visas in the 2014 fiscal year.

The high level of investment required may serve as a hurdle for applicants. Y Combinator, widely considered the world’s best startup accelerator, only offers startups a maximum of $120,000 in investment funding. However, to qualify for the proposed International Entrepreneur Rule, USCIS expects companies to have at least $250,000. Not only that, but this money must come from investors with a record of repeated investment successes. Some policy advocates worry that there simply will not be enough reputable investors able to provide that level of funding. Moreover, even if some investors can fulfill the requirement, they may not all have the necessary experience to satisfy the rule.

The rule may help to keep entrepreneurial talent in the U.S., but will do little to attract new recruits. The applicant pool may be limited by the requirements that the company must be U.S.-founded and that the applicant have a significant role in the company. Because of these specifications, applicants must be individuals who are already in the U.S. Nonetheless, this rule may help international students at U.S. universities who are unable to acquire H-1B visas.

There is also an issue of time — entrepreneurs only have five years, maximum. The high levels of investment required for initial application and renewal may put strain on startups. TechCrunch puts the average time of an “IPO-track startup” at about seven years, although it can take up to ten years. Given this information, the parole periods may not be long enough to positively impact startups.

Ultimately, potential investors may view the startup visa as an undesirable risk. Investors will be aware of the possibility that a company, or at least its key members, could lose immigration status.

Lastly, it is unclear whether the Trump Administration will alter the details of the rule. A Department of Homeland Security spokesman informed CNN on January 23 that the DHS is still awaiting guidance on how President Trump’s executive order freezing new and pending regulations will impact the International Entrepreneur Rule’s implementation.

Learning from Other Countries

The U.S. is not the first to propose a visa for startup entrepreneurs. Many other countries have established their own processes for admitting international entrepreneurs, including the United Kingdom, Canada and France.

The U.K. allows individuals wishing to set up or take over a business within its borders to apply for a Tier 1 (Entrepreneurship) Visa which can be extended before they can apply for settlement or an indefinite leave to remain. The U.K.’s financial requirements for applicants are also more flexible than the U.S. requirements in sources and amounts of funding. The U.K. startup visa does not require that applicants start the business themselves. Instead, intention of starting a new business, taking over one or providing significant funding is enough.

Canada seeks to attract innovative talent by tying them to government-approved Canadian entities with a goal of facilitating long-term success. The Canadian Start-Up Visa Program focuses on the creation of new startups. Applicants must obtain at least one letter of support that details funding from a list of designated organizations. This includes venture capital funds, angel investor groups and business incubators.

France launched its French Tech Visa in 2016 to complement the “French Tech Ticket” program it began in 2015. The French Tech Ticket program selects 70 international entrepreneur teams and provides funding and support with a French incubator for a year. The French Tech Visa expands this program to attract foreign startup founders, exceptional talent, investors and angels by offering renewable visas.

The U.S. could look into incorporating aspects of these programs to compete for the top foreign entrepreneurs. For example, the entrepreneurs can only renew this visa once; perhaps lawmakers could extend its duration or allow additional renewals. The U.S. could also aid the integration of accepted businesses into the startup and tech communities. These changes, however, would be dependent on President Trump’s immigration policy.

Conclusion

Eligibility requirements of the International Entrepreneur Rule are rigorous, and the time period allotted by the visa is short. It is reasonable to assume that the proposed startup visa would have little, if any, economic impact. Moreover, if President Trump repeals the order, there may be little hope for a truly meaningful startup visa. While Trump vows to “establish new immigration controls to boost wages and to ensure that open jobs are offered to American workers first,” his exact plans for reforming H-1B visas, including the possibility of a startup visa, are unclear.