Global Entrepreneurship and U.S. Innovation and Job Creation through Employer-Based Immigrant Visas
March 30, 2011 by Bierce & Kenerson, P.C.
The global services economy has caused certain job functions to be performed in foreign countries instead of locally at the headquarters. Global entrepreneurship offers one possible means for developing jobs locally. Not only can Americans establish global services companies with employees in the U.S. and abroad. Foreigners can do the same under existing U.S. immigration laws. Under a proposed law sponsored by Senators Kerry (D-Massachusetts), Lugar (R-Indiana) and Udall (D-Colorado), U.S. job creation would get a boost from a new employer-based visa for alien entrepreneurs who have received significant capital from U.S. investors. The proposal would promote U.S. jobs and would encourage U.S. investors (including “angel” accredited investors and private equity funds) to support global entrepreneurship. This legislation has not yet been enacted and faces many challenges.
Proposed “Startup Entrepreneur Visas.” This “Startup” entrepreneur visa category would entitle “qualified immigrant entrepreneurs”, who meet several qualifications relating to investment amount, funding sources, job creation and positive cash flow, to receive initial two year visas under three scenarios:
I. Qualified U.S. Investors
II. Unexpired H1-B visa status or minimum graduate education levels
III. Ownership in a substantially profitable foreign company
I. Qualified U.S. Investors. The “startup” entrepreneur would have to prove the value proposition of a new business by persuading qualified U.S. investors. Such investors can be a qualified venture capitalist, a qualified super angel investor, or a qualified government entity (as determined by the Secretary of Homeland Security). The definitions of qualified U.S. investors are:
- A “qualified super angel investor” would be U.S. citizen individual who is an accredited investor (as defined in 17 CFR 230.501(a)) who has made at least 2 equity investments of not less than $50,000 in each of the previous 3 years.
- A “qualified venture capitalist” would means a U.S.-based entity that is classified as a “venture capital operating company” under 29 CFR 2510.3-101(d) that is comprised of partners, the majority of whom are United States citizens and meets certain operating tests. It must have capital commitments of not less than $10,000,000. It must have been operating for at least 2 years. It must have made at least 2 investments of not less than $500,000 during each of the most recent 2 years.
Minimum Investment by U.S. Investor. The qualified U.S. investor must have committed to invest not less than $100,000 on behalf of each startup entrepreneur.
Minimum Commercial Activities. The “Startup” visa entrepreneur would need to meet three key hurdles for obtaining and retaining the visa: For the first two years after the visa is issued, the “startup” visa entrepreneur must conduct business activities that:
- create not fewer than 5 new full-time jobs in the United States employing people other than the immigrant’s spouse, sons, or daughters;
- raise not less than $500,000 in capital investment in furtherance of a commercial entity based in the United States; or
- generate not less than $500,000 in revenue.
II. Educational and Professional Skills. This “Startup” entrepreneur would need to demonstrate high levels of skill and business acumen. The entrepreneur could be the holder of an unexpired H1-B visa. Alternatively, the “startup” entrepreneur would have to have earned a graduate level degree in science, technology, engineering, math, computer science, or other relevant academic discipline from an accredited United States college, university, or other institution of higher education and may already be in the U.S.
Income Level. This “Startup” entrepreneur would need to have a threshold income. The threshold would be an annual income of not less than 250 percent of the Federal poverty level; or the possession of assets equivalent to not less than 2 years of income at 250 percent of the Federal poverty level. Currently, for 2011 for the continental U.S. (not including Hawaii and Alaska), the “Federal poverty level” is an annual income of $10,890 per year for an individual plus approximately $3,820 per person in the same family. Therefore, this translates roughly into minimums of about $30,000 annual income or about $60,000 in assets.
Minimum Investment Level. The “startup” entrepreneur must show that the U.S. investor has invested at least $20,000 and can meet three additional tests measured at the end of two years after the “startup” visa is granted:
During such two years, the entrepreneur’s foreign company must either:
- create not fewer than 3 new full-time jobs in the United States that employ people other than the immigrant’s spouse, sons, or daughters;
- raise not less than $100,000 in capital investment in furtherance of a commercial entity based in the United States; or
- generate not less than $100,000 in revenue.
III. Foreign Company Revenue. This “startup” entrepreneur has a controlling interest in a successful foreign company. A foreign company will be sufficient if it has already generated, during the most recent 12-month period, not less than $100,000 in revenue from sales in the United States. Similar to the type II. “startup” entrepreneur above, this entrepreneur’s foreign company must also demonstrate that two years after the visa was granted, it has created the same number of jobs and level of capital investment or level of revenue.
Contrast with EB-5 Visas. This visa category would not increase the number of employer-based visas. As a result, it would create competition for EB-5 visas that required an investment of at least $1.0 million plus at least 10 U.S. employees in the initial phase. The U.S.business created under EB-5 visas might not generate the higher salaries, higher growth and higher degree of global competitiveness that an entrepreneurial “startup” visa might. EB-5 visas often result in formation of local food service and hospitality businesses, while a “startup” visa would be focused on the rapid growth and innovation that VC-funded entrepreneurs are expected to deliver based on a well-defined business plan.
Career Path for H1-B’s. This visa category would encourage foreign managerial or technical workers under H1-B visas to stay in the United States and use that training to generate income and jobs in the United States.
Career Path for U.S.-Educated Graduates. This new visa category would encourage U.S.-trained engineers to stay in the United States.
American Innovation Strategy. This “startup” visa proposal would stimulate innovation in America. Unlike the EB-5 visa, the “startup” visa would let private investors decide whether the foreign entrepreneur has sufficient skills, training and acumen, and a sufficiently robust business plan, to justify the investment of risk capital into the new venture. This test poses a very high hurdle. Qualified U.S. investors normally require a high return on investment (at least based on the business plan) to justify taking the risk of losing the investment.
Impact on Outsourcing. The “startup” visa would encourage foreign entrepreneurs, who have developed foreign service delivery platforms, to establish their personal residence in the United States. A number of U.S. venture capitalists have invested in leading foreign-based service companies such as Genpact and WNS. This “startup” visa would help Americans globalize and encourage innovation at home.