Immigration rule changes could spark a fresh wave of US based innovation. This is our take. It doesn’t go wholly un-noticed that the official White House Medium presence was used last Friday to announce an important proposed immigration rule change that could make it a lot easier for the US to attract entrepreneurial talent: The Department of Homeland Security (DHS) is publishing a proposed International Entrepreneur Rule, which describes new ways in which DHS will facilitate the ability of certain promising startup founders to begin growing their companies within the United States, contingent on factors such as significant financing from U.S. investors. The current proposals will make it much easier for foreign nationals wanting to get onto the US startup ladder to work from the US than is currently the case. Right now, most people use the H1-B style of visa or the L-1 visa as the stepping stone to green card status. Unfortunately, the L-1 and H1-B visas make better sense for established businesses than they do for startups. While the new rules have not yet been triggered, the current proposals will apply under discretionary arrangements where a startup entrepreneur can demonstrate the following: – Who have a significant ownership interest in the startup (at least 15 percent) and have an active and central role to its operations; – Whose startup was formed in the United States within the past three years; and – Whose startup has substantial and demonstrated potential for rapid business growth and job creation, as evidenced by:
+ Receiving significant investment of capital (at least $345,000) from certain qualified U.S. investors with established records of successful investments;
+ Receiving significant awards or grants (at least $100,000) from certain federal, state or local government entities; or
+ Partially satisfying one or both of the above criteria in addition to other reliable and compelling evidence of the startup entity’s substantial potential for rapid growth and job creation. Under the new rules, an entrepreneur would be granted a visa for an initial two year period.
The visa can be extended a further three years upon demonstrating that the company continues to enjoy inward investment, increased revenue and/or is providing expanded job opportunities. The White House sees significant potential benefit to the US economy from its announced package of immigration reforms: The administrative reforms announced by the President in November 2014, if fully implemented, could boost the nation’s economic output by up to $250 billion, while shrinking the federal deficit by $65 billion over the next ten years. In short, changes to current immigration rules could expand the economy bringing with it a higher tax take. My take There have always been ways for foreign nationals to obtain visas to stay in the US but these tended to disadvantage those who are in genuine startup mode. The proposed rule change lowers the bar significantly while clearly tying the ability to stay to US led investment. Whether it leads to a mass exodus from non-US tech hubs is moot at this point but significantly reducing the number of hoops while offering clear guidance makes a substantial difference. The ‘central role’ characteristic is interesting given that H1-B rules operate differently, starting with an employee/employer relationship. The new rule does not require the same condition, though it would be an odd entrepreneurial relationship where the entrepreneur was NOT employed. The relatively low level of required investment covers those businesses that are at angel/seed capital stage. In my view this will encourage US investors to go hunting for entrepreneurs in non-US tech hubs like London, Barcelona, Mumbai and Berlin with the express purpose of ‘head hunting’ the best, and providing a pathway to tap into US talent, investment and other resources as a way of stimulating growth. That’s got to be attractive top those who see the US as the best location for technology entrepreneurs.
The White House recognizes the potential for significant economic upside, noting that: Immigrant entrepreneurs have always made exceptional contributions to America’s economy, in communities all across the country. Immigrants have helped start as many as one of every four small businesses and high-tech startups across America, and the majority of high-tech startups in Silicon Valley. Studies suggest that more than 40 percent of Fortune 500 companies were founded by immigrants or the children of immigrants. It’s hard to disagree with that assessment. Policy makers in Europe and the UK, faced with the impact of Brexit, will need to come up with a response that improves European competitiveness. I’m not convinced the climate is right for a European response although I can imagine individual governments taking a position. Having spoken to dozens of US startups and established companies that have attracted immigrants, the US tech hubs still serve as a powerful magnet. A recent conversation with an Australian for example, highlighted the need to be in the Bay Area to help solve some of the more difficult data and machine learning problems that are emerging from AI projects. It is that in-person engagement that matters as much as funding. However, the nose bleed cost of living in the Bay Area is having a negative impact. Will that make any difference to non-US entrepreneurs hoping to jump on the startup visa wagon? I doubt it, but with hubs like Austin, Seattle and Boston looking more attractive then the budding entrepreneur certainly has choices. I’m less sure about the initial two year rule. That sounds like a good amount of time during which to establish and build a presence, but it is surprising how quickly time flies when you’re in the startup cauldron. There’s also the question of what happens after the full five years have expired. When thinking about startup timelines, it’s not uncommon for startups to take seven years before there is an exit event or to reach critical mass. My best guess is that this new proposed rule is step one for revised laws that are more closely aligned to commercial reality than what we see today. Regardless, the US has just become MUCH more attractive as a startup location – not that it was too shabby beforehand.