International Entrepreneur Rule: Understanding Obama’s Startup Visa

The Obama administration is making it easier for international entrepreneurs to launch startups in the United States. The U.S. Citizenship and Immigration Services (USCIS), proposed a new law called the "International Entrepreneur Rule” that would allow foreign entrepreneurs starting their businesses in the United States to stay in the U.S. for an initial stay of up to two years and to stay for up to three years thereafter if some requirements are met.

Immigrant entrepreneurs have made extraordinary contributions to America’s economy. Immigrants started one of every four small businesses across the country. Immigrants and their children founded over 40 percent of companies in the Fortune 500—from GE and Ford to Google and Yahoo!—which collectively employed over 10 million people and generated annual revenue of $4.2 trillion.

VC / Angel Investors Required

The International Entrepreneur Rule is not a startup visa allowing just any international entrepreneur to launch their startup in the U.S. It is limited to the special few startups that have already demonstrated a certain level of success in raising funds. To qualify a startup must receive at least $345,000 in funding from U.S. investors or at least $100,000 from a government institution.

Investments from the founders themselves, their family or any entity in which the entrepreneurs or their family have an ownership stakes do not count toward the $345,000 minimum. Additionally, funding must come from investors with track record of previous investments in startup companies totaling at least $1,000,000. To demonstrate their track record, the investors would need to show that at least two of their prior startup investments subsequently experienced significant growth in revenue or job creation.

In other words, the rules are meant to ensure that the funding come from angel investors or venture capitalists. This requirement limits the usefulness of the International Entrepreneur Rule for the great majority of foreign founders. Although many foreign entrepreneurs successfully raise $400,000 or more, few succeed to raise funds from U.S. based VC or angel investors. Instead, the first few rounds often stem from foreign angel investors and from the entrepreneurs’ friends & families (the so-called Friend and Family Round). These sources of fund would not count toward the $345,000 minimum.

The Alternative Criteria

To mitigate the funding minimum, the International Entrepreneur Rule also proposes alternative criteria. Raising funds from angel investors, VC or government institutions remains a necessity but if the entrepreneurs fall short of the $375,000 minimum, they may still get their startup visa. However, they would have to submit “reliable and compelling” evidence of the startup’s potential for rapid growth and job creation.

Interestingly, the proposed rule notes that participation in “established and reputable start-up accelerations (or incubators) may serve as … a strong indicator of the entity’s potential.”

The Other Criteria

The criteria for the startup visa include entrepreneurs having at least a 15-percent stake in their startup, as well as an “active and central role” in its operations. The startup must also have been founded in the US within the past three years, as well as demonstrate the potential for growth and job creation. Additionally, a startup company can sponsor up to three founders via the startup visa.

After the initial two-year period, entrepreneurs would need to re-apply to stay in the U.S. up to three years, provided they meet another set of criteria, including owning at least 10-percent of their startups, revenues of at least $500,000, double-digit annual revenue growth, and the creation of at least 10 full-time jobs.

This International Entrepreneur Rule visa is not law just yet, but should become law before the end of President Obama’s tenure in office. Those for and against the proposal have 45 days to comment before a final rule is adopted.

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