By Lucrecia Z. Knapp and Glenn R. Schieck
To encourage the growth of foreign startups in the United States, the Department of Homeland Security has released a proposed immigration rule that would grant work authorization to certain foreign entrepreneurs. According to Inc.com, immigrants now launch more than a quarter of all U.S. businesses.
Despite their importance to the U.S. economy, these foreign entrepreneurs face significant roadblocks under our current immigration landscape, making it difficult to remain in the United States and start a business. The proposed Homeland Security rule seeks to address some of these roadblocks.
For starters, the rule provides a viable alternative to the H-1B visa for foreign graduates of U.S. colleges willing and able to develop a successful startup enterprise. Currently, many foreign students who wish to remain and work in the United States after graduation must win a spot in the annual H-1B lottery – about a 1 in 3 chance in recent years.
Further, the proposed rule allows for significantly lower levels of investment than existing investment-based visa options. While the existing EB-5 visa requires a $500,000 or $1 million investment, the proposed rule requires only $345,000 from U.S. investors or $100,000 in government funding. Lastly, the rule provides much-needed certainty for U.S. investors.
By ensuring work authorization for key startup employees, venture capital and angel investors can invest with confidence.
Despite the potential benefits, the proposed rule contains provisions that may serve to undermine its intended purpose of allowing immigrant entrepreneurs to work in the United States. First, the proposed rule requires entrepreneurs to show that they can support themselves at 400 percent of the federal poverty guidelines (around $80,000 for a household of two).
Because many startups structure compensation around equity rather than cash, this requirement could pose a substantial issue for some applicants. The proposed rule also requires that entrepreneurs demonstrate a certain level of professional accomplishment, which may be difficult for young startup founders just out of college.
Finally, the proposed rule requires that a startup’s investment come from “qualified U.S. investors,” which essentially restricts investment to well-established venture capital firms.
On the whole, if enacted, the proposed rule would provide a new path for foreign entrepreneurs seeking to remain in the United States. With careful analysis of the rule’s challenges, foreign entrepreneurs could have better opportunities to start and grow their businesses in the United States.
Lucrecia Z. Knapp and Glenn R. Schieck are associates in the immigration practice group at Harter Secrest & Emery LLP.