Chicken-and-Egg Problem Remains Under Proposed International Entrepreneur Rule

When the U.S. Department of Homeland Security announced the International Entrepreneur Rule last month, I was excited that highly motivated foreign entrepreneurs finally had another means to remain in Silicon Valley to build amazing companies and create the lives they dream of for themselves and their families.

However, my enthusiasm has dampened a bit. As currently written, the rule fails to completely resolve the chicken-and-egg problem facing many foreign startup founders. Foreign founders need to prove to accelerators, angel investors and venture capitalists that no issues exist with their immigration status. Investors don’t want to risk investing in a startup only to see the founder deported or otherwise leave the country.

The Proposed Rule

Under the proposed International Entrepreneur Rule, U.S. Citizenship and Immigration Services (USCIS) would grant parole to immigrant entrepreneurs who provide a “significant public benefit.” Parole is a temporary stay in the U.S. awarded by USCIS on a case-by-case basis. The public benefit comes from entrepreneurs boosting the U.S. economy through the rapid growth of a startup, job creation and innovation.

The rule as currently written requires entrepreneurs to show their startup has received at least $345,000 from credible U.S. investors or at least $100,000 in government grants within the year before applying for parole. The assumption is that investors with experience funding successful startups and government agencies will invest capital in only the most promising startups.

The proposed rule also states other supporting evidence of the startup’s growth potential could make up for funding that falls short of the minimum. That’s good news for startups since the top accelerator programs provide seed capital, primarily in the $100,000 to $120,000 range. However, just how USCIS officers will apply these rules and interpret alternative evidence remains uncertain.

Investor Risks

An agreement of conditional funding may resolve the chicken-and-egg dilemma. But whether accelerators, angel investors or venture capitalists would fund a startup if the founder obtains parole — and whether USCIS would accept such an agreement as evidence — remains unclear.

Meanwhile, other deportation timing risks remain.

Immigrant entrepreneurs are eligible to receive parole for a maximum of five years — two years initially followed by one, three-year extension. In contrast, VC-backed startups typically go public or are purchased after seven to 10 years. Moreover, USCIS can terminate parole at any time without notice or a means for the parolee to appeal.

And finally, parole fails to offer a pathway to a green card. After five years, startup founders would find themselves back where they started before the parole process. They would need to return to their home country, start a subsidiary, and work there for at least a year. Only then could they try to qualify for a visa or green card.

Call to Action

The comment period for the proposed rule ends on October 17. I will be weighing in on the rule. I encourage entrepreneurs and investors to weigh in as well.

The final version of the International Entrepreneur Rule is expected to go into effect before President Obama leaves office.