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U.S. Government To Foreign Entrepreneurs: Show Us The VC Money

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The U.S. Citizenship and Immigration Services (USCIS) wants to help international start-up founders stay in the United States, at least on a temporary basis. The USCIS has proposed the International Entrepreneurship Rule to fill a gap in the legal options offered to foreign, non-immigrant entrepreneurs who want to start a business in the U.S.

Although the move is a welcome development in the start-up community, the rule requires founders to raise a significant amount of funding from venture capitalists to qualify for temporary permission to stay in the country.

The public comment period for anyone who wants to weigh in on the proposal ends Oct. 17. Information on how to submit comments via website, email or mail can be found in the Federal Register’s notice of the proposed rule.

“There are quite a lot of startups that would be interested in this program,” acknowledges Peter F. Asaad of Quarles & Brady in Washington, D.C. In fact, he knows of a number of start-ups that won’t make it if the rule isn’t finalized and their founders have to leave. “It happens all the time,” says Asaad.

A high-profile example of an entrepreneur who battled visa problems is Elon Musk. The founder of SpaceX and the co-founder of Tesla Motors and PayPal, Musk was born in South Africa and emigrated to Canada before coming to the U.S. to attend college. Today, Musk’s entrepreneurial career probably wouldn’t get off the ground in the U.S. due to the annual cap on H-1B visas, which operates under a lottery process, Asaad says. He also cites a “disconnect” with adjudication officers when it comes to dealing with the nature of start-ups.

The USCIS' proposed rule will allow foreign entrepreneurs to be considered for parole—temporary permission to stay up to two years in the United States—while building their start-ups. Letting start-up entrepreneurs stay and work in the U.S. will provide “a significant public benefit through the substantial and demonstrated potential for rapid business growth and job creation,” the USCIS said in an Aug. 26 statement.

Under the International Entrepreneurship Rule, the Department of Homeland Security would be able to grant parole on a case-by-case basis to entrepreneurs who launched their startup in the U.S. within the past three years and have met certain financial guidelines.

To be eligible, start-up founders must have an ownership interest of at least 15 percent in the company and be able to provide evidence of “substantial and demonstrated potential for rapid business growth and job creation.” Such evidence includes the investment of at least $345,000 in capital from qualified U.S. investors or at least $100,000 from federal, state or local government entities, or partial satisfaction of those two financial criteria plus other compelling evidence. Start-up founders who are granted parole may stay in the U.S. for an additional three years if the company can show it continues to attract significant VC investment, generate revenue, or create jobs.

Currently, there’s no entrepreneur visa for founders start-ups funded by VC money. For example, the H-1B visa is notoriously difficult to obtain and is only granted to applicants who plan to work for the business they start “in an occupation that normally requires a bachelor’s degree or higher in a related field of study (e.g., engineers, scientists or mathematicians),” according to the USCIS. Further, only 65,000 H-1B visas are issued each year.

Another option, the E-2 visa, requires applicants to invest a substantial amount of their own money in the business. Applicants must also be from a country that has that has a treaty of commerce and navigation with the U.S. or a country designated by Congress as eligible to participate in the E-2 visa program. The F-1/OPT (Optional Practical Training) visa is for international students who want to start a business that is directly related to their major area of study, but is only for up to 12 months unless the student seeks another post-secondary degree at a higher degree level, the USCIS points out.

Asaad says the proposed International Entrepreneurship Rule has a number of problems, however. The proposed rule could help start-up founders secure work authorization if processed by properly trained adjudicators, but unfortunately, it does not provide a long-term or stable solution. “It’s better than nothing but doesn’t inspire confidence,” he admits.

First, because the rule is proposed by the USCIS and not created by Congress, a new presidential administration could change or delete the rule, he notes. It’s not a stable, long-term category and could be withdrawn at any time without the opportunity for appeal.

The review process also requires highly trained staff. “Adjudicators are where the rubber meets the road. If they focus on revenue and sales that disconnect—which occurs all too often –will be the demise of this program,” according to Asaad. The international entrepreneur, and others that USCIS promotes for entrepreneurs including the H-1B program, need adjudicators who are trained to understand the nature of “pre-revenue start-ups” that have substantial capital investments but lack sales or other sources of revenue that other companies can demonstrate, he explains.

The financial requirements are also a concern. The rule is very focused on requiring entrepreneurs to raise a specific amount of funding from VCs and should be more flexible because meeting the financial threshold could be difficult, Asaad says. “Investors want to see that they’re putting their money into a startup that has a founder and is stable,” he explains.