Finally! The DHS Rule on International Entrepreneurs Is Long Overdue
In 2010, Amit Aharoni, ai Stanford Business School graduate and an Israeli citizen, launched CruiseWise.com, an online cruise booking company, with $1.65 million in venture capital. CruiseWise hired nine Americans in one year and was was ranked by Business Insider among the "20 Hot Silicon Valley Startups You Need to Watch."
CruiseWise sponsored Aharoni for an H-1B visa for “specialty occupation” workers. But, in a stunning decision, U.S. Citizenship and Immigration Services (USCIS) denied the petition, claiming that Aharoni’s job of CEO did not require a degree. Aharoni had to move to Canada and struggle to run CruiseWise by Skype from a friend’s living room. When the story hit the press, USCIS approved the petition. Since then,CruiseWise has been acquired by CruiseCritic, a TripAdvisor brand.
Immigration, by its nature, is entrepreneurial. Immigrants transcend borders and take significant risks. Immigrant-entrepreneurs have created countless jobs and contributed profoundly to the U.S. economy. Statistics lead to conservative estimates that a visa for entrepreneurs could generate a minimum of 500,000 to 1.6 million jobs over the next decade. Unfortunately, though, U.S. immigration law turns a cold shoulder to entrepreneurs.
While F-1 STEM graduates can start a business during post-graduation “practical training,” they are limited to three years' time. The H-1B visa also is now beyond reach due to the lottery, to restrictions on self-employment and to the Trump Administration’s singular focus on alleged abuse, which we have not seen in our practice.
The International Entrepreneur Rule
In a welcome change, on January 17, 2017, the Department of Homeland Security (DHS, USCIS’s parent agency) published the “International Entrepreneur Rule,” which takes effect this coming July 17. This rule allows DHS to temporarily “parole” U,S, entrepreneurs whose startups provide a “significant public benefit” through a strong potential for rapid growth and job creation.
The rule is based on the demonstrated job-creation rate of immigrant-based businesses and establishes criteria to identify entrepreneurs who are likely to launch successful businesses.
What is “parole"?
A noncitizen who is paroled into the United States is physically allowed to enter but is not legally “admitted.” A parolee does not get or need a visa, hold a lawful visa status or become eligible for a green card. Rather, DHS (through an adjudicator at USCIS or a border inspector) can parole noncitizens into the country on a case-by-case basis for “humanitarian reasons” or “significant public benefit.” The rule spells out which entrepreneurs should be granted parole for significant public benefit.
The nuts and bolts of the rule: The devil is in the details.
The rule establishes daunting standards for entrepreneurial parole. For starters, a startup cannot be more than three years old at the time of application. The entrepreneur must own at least 15 percent of the company, play an active and central role and maintain an income that's 400 percent above the poverty level (currently $12,060 for a single person). Parole status is limited to three people per startup.
At its core, the rule requires proof that the startup has “substantial potential for rapid growth and job creation” as shown by one of the following (to be CPI-adjusted):
Capital Investment. This can be equity or convertible debt and must total at least $345,000 and have come from “established” U.S. investors (e.g., VC firms, angel investors, individuals or accelerators) in the year before application. (This dollar amount is based on the 2015 average of angel investments in startups). Further, each investor must have invested a total of $1 million in startups in the previous five years, including investments in each of at least three calendar years. Finally, at least two of the investors’ recipient firms must each have employed five U.S. workers or generated $500,000, with a 20 percent growth rate. Investments by the entrepreneur do not count.
Government funding. This can be federal, state or local funding but must total at least $100,000 in economic development, R&D or job creation awards or grants.
Alternative criteria. An applicant who only partially meets one of the above requirements still can qualify for parole with other “compelling evidence.” Examples include proof that the startup has been accepted into a reputable accelerator, is creating new technologies or is producing cutting-edge research, or that the entrepreneur has a strong startup track record.
Of course, any application must be supported by complementary evidence of growth potential. This could include letters from government agencies, investors, business associations; press coverage; patents; educational credentials; and, corporate financial records.
The parole period. The entrepreneur (and his or her family) can be paroled into the United States for two years, initially, and the spouse can obtain work authorization. Parole renewal for three more years is available if the business shows continued substantial potential for rapid growth and job creation, which is no easy task. It requires proof that the company, during the initial parole period, 1) received $500,000 in additional capital investments and/or government awards/grants; 2) generated $500,000 annually at a 20 percent growth rate; or 3) created at least 10 qualifying jobs. Alternatively, the company can produce other reliable and compelling evidence. By this point, the entrepreneur’s ownership interest may have fallen to 10 percent but he or she still must play an active, central role in the business.
The DHS rule is a sorely needed first step to attract talented entrepreneurs who might otherwise start businesses overseas. However, it is not a panacea. The criteria are severe, and USCIS can deny parole if a qualified applicant is not otherwise deserving.
Parole does not lead to a green card, either, and requires the entrepreneur to find ways to remain once his or her parole expires. However, the rule does promise to release a gush of entrepreneurial energy and create jobs. As hockey legend Wayne Gretzky once said, “You miss 100 percent of the shots you don't take.”
Hopefully, the Trump administration will honor the rule so that foreign entrepreneurs can take their shots and help to grow the U.S. economy.