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2010-10-21

US Calling Entrepreneurs

Reform in EB-5 visa will attract more startups to the US

You can start business in the United States in the wink of an eye-in 4 days as compared to India-average 88 days. It can hardly be debated that there is no other place in the world where businesses can start and succeed as fast. However, stringent immigration laws in the US have been discouraging offshore entrepreneurs to prove their mettle in this wonderful country and contribute to the economy as well. Well this is going to change soon. Given the American drive to create more and more jobs to push the sagging economy, the usual hot potato-‘immigration laws,’ are now in the reform mode. Migrating to this country to start a business might become easier soon.

All around the world, small businesses are seen as engines spurring job creation-something the US needs the most for its economic recovery. Historically, the prosperity of the US has been driven by thousands of jobs created by companies co-founded by foreign nationals. Here are some examples-25% of America’s venture-funded and publicly traded businesses, including Google, Yahoo!, eBay, Intel, Pfizer, DuPont and Procter & Gamble have been founded or co-founded by foreign-born citizens. In 2006, these companies alone garnered more than $52 billion in sales and employed 450,000 workers. Indian entrepreneurs alone in the Silicon Valley have created hundreds of thousands of jobs in the last 15 to 20 years.

As per the growing realization, the existing visa norms make it very difficult for immigrants to set up their ventures. Here are some issues:

  1. Startups face financing problems when they are facing visa issues
  2. You might have to trade majority stake in your venture to get investors sanction your visa
  3. Foreign students (best brains from around the world) passing out from American universities and colleges want to stay back and start their own venture; but they face harrowing visa issues.

Currently, the US grants 65,000 H1B visas (work visas) to immigrants and an additional 20,000 H1B visas to individuals who hold an advanced degree.  This work visa has always drawn flak on the grounds of Americans losing jobs to H1B holders. There’s another category-EB-5, under which 10,000 visas are annually granted for immigrant entrepreneurs. The EB-5 visa allows foreign nationals to invest at least $ 1 million into a US startup or an existing business and create 10 jobs. Else you invest $ 500,000 in capital investment and create 5 jobs in economically disadvantaged areas in order to obtain permanent resident status commonly known as green card. However this visa category is restricted to investors and not the entrepreneurs who would drive that value creation.

More and more lobby groups are now vouching for reform in the EB-5 visa provision and ushering in another category-EB-6. This new entrepreneur visa is being touted as one that would invite the best brains from all over the world to start their own ventures and employ Americans. Early this year in February, Senators John Kerry and Richard G. Lugar introduced the Startup Visa Act of 2010. The proposed Act, calls for reforming the existing EB-5 category and creating a new EB-6 category for immigrant entrepreneurs. A portion of the 10, 000 visas allowed annually under the EB-5(only 692 were issued in 2009) will be moved to EB-6 category. So what are the proposed criteria to avail this visa?

  1. The Startup Visa will enable entrepreneurs to secure a visa to come to the US and create new companies.
  2. The entrepreneur should be backed by a sponsoring US venture capital or angel investor of at least $ 100,000 in an equity financing of not less than $ 250,000
  3. The investors should be qualified according to certain criteria set by the Securities and Exchange Commission of the US in order to be an ‘accredited investor’.
  4. The angel investor needs to be a US citizen and should have made at least two equity  investments in the past three years of not less than $ 50,000 each. Qualified venture capitalists must be US based VC firms, not less than two years into business and should have made at least two investments of not less than $ 500,000 in the past two years.
  5. At the end of two years, those entrepreneurs who have employed at least five full-time employees or who have either raised $ 1 million new capital or earned $ 1 million in revenue will be issued green cards.

Though action on the proposed Act is yet to be seen, by next year perhaps, it definitely carries the promise to ease entrepreneurs’ entry into the US.

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