Foreign founders of seed-funded U.S. startups may soon have a viable U.S. visa option, filling a gaping hole in immigration policy. The Obama administration is seeking to act where Congress has failed to respond to the pressing realities of tech startups.
Following through on a directive from President Obama, issued in Nov. 2014, the Department of Homeland Security (DHS) published a proposed rule, called the “International Entrepreneur Rule”, which would allow for founders of startup entities, backed by established U.S. investors, to apply for “parole” permission to remain in the U.S. for up to five years to grow their business.
This is welcome news for the tech community, which has long been frustrated by the archaic visa system that does not allow most immigrant tech entrepreneurs to cleanly fit into any of the existing visa categories.
Currently, startup founders who need U.S. visa status to work may not have any choice but to try to build the company outside the U.S., in either their home country or in a third country with a more entrepreneur-friendly immigration policy. This often presents a lose-lose situation for the U.S. and the entrepreneur, with the U.S. losing out on innovation and economic development and the entrepreneur missing out on access to funding and the deeply rooted tech startup communities that exist here. Under the new rule, accelerators like Techstars could both attract and keep foreign entrepreneurs in the region. Foreign national employees who want to leave Microsoft or Amazon to pursue their own ideas would have a pathway that could include significant ownership of the startup. Foreign students at University of Washington graduate programs would have options other than working for established companies. The Puget Sound region could benefit richly.
How would a startup entrepreneur be able to get this new parole status? First, it requires the entrepreneur to have formed the startup in the past three years and own 15 percent or more of it. That startup has to have at least $345,000 in funding in the past year from active investors with a recent track record of investing in successful startups. If the startup does not have this type of funding, a government grant for startups totaling $100,000 may qualify the entrepreneur for the parole status. Suggesting some flexibility, the rule provides that entrepreneurs only partially meeting this level of funding can still apply for parole, with “other reliable compelling evidence” that the startup has the potential for rapid growth and job creation.
An entrepreneur meeting these requirements would apply for parole with the U.S. Citizenship and Immigration Service, an agency within DHS, along with a processing fee of $1,200. If granted, the parole is good for two years initially, and can be extended for an additional three years if the startup has obtained additional funding of $500,000, created 10 full-time jobs, or reached $500,000 in revenue, averaging at least 20 percent annual growth. Again, alternative criteria are allowed if there is partial attainment of one of criteria. To maintain parole, the entrepreneur will be required to maintain an income of at least four times the Federal Poverty Guidelines for his or her household size (for a household of one, this would require annual income of $45,520 under the 2016 guidelines, with an additional $16,640 of income required for each additional household member).
Startup founders who want to take advantage of this rule will need to be particularly selective with regard to investors. With the minimum investment amount needing to come from qualified investors with a track record, it will be even more important to seek out funding from established VCs and only experienced and active angel investors. In addition, founders should seek out opportunities for the DHS-suggested evidence to help their case for parole. This includes press coverage of the startup, participation in established accelerator programs, and similar documentation that the startup is engaged in the development of new technologies or cutting-edge research.
Investors interested in startups founded by an international entrepreneur should be prepared with documentation proving the required track record of investments to make it a qualified investment for purposes of the rule. This can not only let the founder focus on growing the company without spending more time than necessary on visa issues, but may be an important tool to court new startups needing to obtain parole for a founder.
Before we get too ahead of ourselves, the rule is only a proposed one. DHS is seeking comment on the proposed rule by Oct. 17, 2016. Comments may be submitted online here (note that all submissions will be posted publicly without change, so include personal information only if you want it made public). The tech community would benefit from its members submitting comments to DHS about the proposed rule, from investors and founders alike. In particular, DHS invites public comment on alternatives to the proposed investment amount and government funding thresholds that applicants may use to demonstrate a startup’s substantial potential for rapid growth and job creation.
Commenters are invited to submit comments on whether significant revenue generation, participation in established and reputable startup accelerators, or any other significant external validation factor should be included as a principal basis for seeking parole under this rule.
Will this rule, if enacted in the current form, actually make a difference for immigrant entrepreneurs? In some cases, it could. Still, there are many practical issues to confront. Because this is not a Congressional enacted new visa category, but only the exercise of the President’s discretionary “parole authority,” the entrepreneur’s status is not permanent and will require finding another established visa category before the end of five years such as “alien of extraordinary ability,” “national interest waiver,” or sponsorship by a U.S. employer in which the foreign national does not have ownership interest. The timelines and potentially restrictive interpretations may also reduce its value in practice. Nevertheless, it is still welcome movement.
Kohei Yamamoto and Steve Miller are immigration attorneys with Cowan Miller & Lederman in Seattle, where they represent companies of all sizes with employment-based visas and related matters.
