Engine Applauds International Entrepreneur Rule, Recommends Additional Improvements

At Engine, we’ve seen firsthand some of the extraordinary contributions that immigrant entrepreneurs have made to the startup economy. One-third of U.S. venture-backed companies that went public between 2006 and 2012 had at least one immigrant founder. Moreover, immigrant entrepreneurs started, in whole or in part, some of the most important technology companies of our time, including Google, Intel, Yahoo!, eBay, and WhatsApp. In fact, the United States was home to almost 2.9 million foreign entrepreneurs who generated $65.5 billion in business income in 2014.

For years, the startup and tech communities have been advocating for a pathway that would allow the world’s brightest innovators to start and scale their companies in the United States. However, there currently exists no program specifically designed to encourage immigrant entrepreneurs to build their startups in America.

That could soon change.

In August, the U.S. Citizenship and Immigration Services (USCIS) proposed a new International Entrepreneur Rule that will allow qualifying foreign entrepreneurs to live in the U.S. to build their startup for up to five years. Yesterday, Engine and New York-based technology trade group Tech:NYC submitted comments to the agency, applauding the rule and arguing that it “will go a long way towards promoting entrepreneurship and economic growth in the U.S.”

In addition to voicing our support for the proposal, we recommend a number of targeted modifications, which we believe will allow the Rule to have an even greater positive impact. You can read the full comments here and check out some of our recommendations below.


Proposed Modifications:

Create a Whitelist of Qualified Investors: DHS should create a whitelist of qualified investors and modify the Rule such that any startup receiving an investment from a whitelisted investor proceed through an expedited review process. Allowing an investor to pre-qualify for a whitelist such that his or her investments are presumed to have a high likelihood of success will both streamline the parole process and diminish the burden on adjudicators to analyze the merits of often complicated technology companies.

Clarify the Alternative Investment Criteria: The current proposal allows for some flexibility around the investment threshold, allowing applicants to show additional evidence to illustrate their company’s potential for growth, but it does not specify what alternative criteria would be considered sufficient to qualify for parole. We suggested that DHS create a more bright-line set of alternatives that can be used by an applicant to demonstrate growth potential, such as acceptance into a reputable accelerator, positive revenue and/or job creation, or an advanced degree from an accredited American university.

Lower the Threshold for Initial Capital Investment: We believe that the current capital threshold of $345,000 is too high and will limit the extent to which foreign entrepreneurs can take advantage of the program. Instead, we encouraged DHS to lower the threshold to $250,000, an amount that takes into account differences in capital needs by industry and geography, and which we argue is supported by data and historical context.

Create Flexibility for the Ownership Threshold: The current proposal requires that an applicant own at least 15 percent of their company to qualify for parole and 10 percent for re-parole. While ownership is a good indicator of the relative importance of a startup employee, we believe that the Rule’s current ownership threshold may limit eligibility, especially in capital-intensive industries or for teams with multiple co-founder where entrepreneurs may own a lower percentage of the startup. As a result, we recommended that DHS either lower the existing thresholds for ownership or introduce additional flexibilities for providing evidence that an applicant is “well-positioned to advance the entity’s business.”

Lengthen the Parole Period: We argued in our comments that the proposed parole period of 5 years should be lengthened to 8 years. This recommendation was supported at a September 2 roundtable hosted by both Engine and FWD.us. At the event, attendees explained that investing in an entrepreneur who may not be able to stay in the country to see through the time-intensive stage of building a new company, or may be distracted by his or her immigration status, is high-risk. We also highlighted that the amount of time it takes for a startup to successfully produce value for investors through an exit has increased significantly over the past two decades:  in 1999, the average IPO came 4 years after founding, but in 2014, it was 11 years.

Allow Crowdfunding to Count as a Qualified Investment: Crowdfunding is becoming an increasingly attractive vehicle for startup financing. A successful crowdfunding campaign, especially one that reaches the capital investment threshold under the Rule, is as much an indicator of a startup’s traction and potential for growth as similar investments from more traditional sources of seed capital. We proposed that DHS should allow crowdfunding campaigns to count as qualified investments under the Rule.

Read more here.



Photo Credit: angela n.