How Startup Investors Can Take Advantage of the International Entrepreneur Rule

How Startup Investors Can Take Advantage of the International Entrepreneur Rule

The Obama Administration has proposed amending the Department of Homeland Security (DHS) regulations (PDF) to allow select foreign entrepreneurs to stay in the United States for a period of two years to build their companies here. Because I suspect that many venture capital firms already have plans to take advantage of this rule change, I want to focus on how other investors — accelerators, angel groups and individuals — can capitalize on it to find high potential businesses to fund.

The International Entrepreneur Rule Details

Let me start by clarifying what types of entrepreneurs would be eligible for this opportunity. The founders must:

  • Have founded a new company in the United States no more than three years prior to making the application to stay,
  • Own at least 15 percent of the company,
  • “Play an active and central role in the operations” of the company,
  • Have at least $345,000 in investment from “established U.S. investors (such as venture capital firms, angel investors, or start-up accelerators) with a history of substantial investment in successful start-up entities,” have “grants totaling $100,000 or more from government entities that typically provide such funding to U.S. businesses for economic, research and development, or job creation purposes” or “[provide] additional reliable and compelling evidence that his or her entry would provide a significant public benefit to the United States.”

The non-U.S. founder could be in the United States already on some other kind of visa or be outside the country. While the newly formed entity has to have “lawfully done business since its creation” and can’t be more than three years old, it can be a new C corporation registered in Delaware last week.

Because each founder must apply alone and is evaluated individually on a case-by-case basis, the odds of getting a founding team entry into the country are going to be higher if a single founder needs entry than if multiple founders do. Therefore, investors are best off focusing on start-ups that have a largely native-born founding team with one or two foreign members than ventures run by four or five founders who all need entry.

Foreign entrepreneurs from countries that generally get less scrutiny from Homeland Security likely will have an easier time getting these visas than entrepreneurs from other nations. Investors might want to focus on ventures from places like Denmark or China rather than Iran and Pakistan.

Investors might want to look at startups in locales where policy makers have invested heavily in local, county and state programs to support the development of high tech startup companies. A lot of startups in places like Nebraska, Ohio and Michigan obtain grant money through government programs.

Investors probably want to focus on ventures where the foreign founder works full-time as CEO, CTO or CMO. It will be easiest to make the case that the founder “play[s] an active and central role in the operations” if the person is employed full-time and in a key role at the new company.

Individual investors might want to work through online accredited investor platforms, like 1000 Angels. Few individuals are able to invest $345,000 into a single start-up company, and fewer still have a personal “history of substantial investment in successful startup entities.”

Accelerators might pro-actively seek to market their programs to non-U.S. founding teams — particularly those that would benefit from operating in the United States. With a $345,000 raise during or after the accelerator, the company’s founders would be good applicants for visas under the program.

Angel groups might look at the startups entering accelerator programs in their areas and companies with foreign students at local universities on their founding teams.

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Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.