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The Rule:

On August 26, 2016, the U.S. Citizenship and Immigration Services (USCIS) proposed a new rule, which would allow certain international entrepreneurs to be considered for parole (temporary permission to be in the United States) so that they may start or scale their businesses here in the United States.  Link to the Rule.

The proposed rule would allow the Department of Homeland Security (DHS) to use its existing discretionary statutory parole authority for entrepreneurs of startup entities whose stay in the United States would provide a significant public benefit through the substantial and demonstrated potential for rapid business growth and job creation.

Eligibility Criteria:

Under this proposed rule, DHS may parole, on a case-by-case basis, eligible entrepreneurs of startup enterprises:

  • Who have a significant ownership interest in the startup (at least 15 percent) and have an active and central role to its operations;
  • Whose startup was formed in the United States within the past three years; and
  • Whose startup has substantial and demonstrated potential for rapid business growth and job creation, as evidenced by:
    • Receiving significant investment of capital (at least $345,000) from certain qualified U.S. investors with established records of successful investments;
    • Receiving significant awards or grants (at least $100,000) from certain federal, state or local government entities; or
    • Partially satisfying one or both of the above criteria in addition to other reliable and compelling evidence of the startup entity’s substantial potential for rapid growth and job creation.

Process:

Under the proposed rule, entrepreneurs may be granted an initial stay of up to two years to oversee and grow their startup entity in the United States.  A subsequent request for re-parole (for up to three additional years) would be considered only if the entrepreneur and the startup entity continue to provide a significant public benefit as evidenced by substantial increases in capital investment, revenue or job creation.

Limitations:

While the proposed rule comes as a long needed resolution for a foreign entrepreneur in the absence of a “start-up visa,” Inventus Law has identified the following drawbacks that may hinder the aspirations of several foreign entrepreneurs to build great companies in the United States:

  • DHS proposes a limit of parole for 3 entrepreneurs for each entity.
  • A startup founder may meet all of the qualifications for parole, but USCIS could still deny parole to a founder, under its discretionary authority.
  • USCIS has the authority to revoke parole anytime with no administrative or judicial review over a denial or a revocation.
  • Founders who are denied parole have no recourse for appealing the decision.
  • USCIS has the authority to determine “qualifying investors” and “qualifying investments.”
  • The Proposed rule will only allow a 2-year period in the United States [with a possibility of an additional 3-year extension] with no pathway to permanent residence. Foreign entrepreneurs will be required to leave the U.S. to apply for a green card at the U.S. Embassy or consulate in their home country, since parolees cannot obtain employment-based immigrant status inside the U.S.

Venture Capitalists and Foreign entrepreneurs have been waiting since November 2014 to see how USCIS would construct President Obama’s Executive Action announcing a proposed rule.  They are likely to be disappointed with this proposed rule. Both may see the benefits of parole as too small and short in duration in return meeting the proposed rule’s burdensome requirements. They may be disappointed to learn that the USCIS proposal fails to consider the harm associated with revocation of parole, the absence of any administrative or judicial review, and the realization that the proposed regulation offers no pathway to lawful permanent resident status.

Inventus Law Role and Recommendations in the Rule Making Process:

We at Inventus Law recognize that this proposed rule has the potential to be a game changer for foreign entrepreneurs and we are working with the USCIS and the White House Office of Science and Technology Policy (OSTP) in order to improve the proposed rule for our startup founder clients.   The public has until October 17, 2016 to provide comments on the proposed rules.

One of the key elements we would like to see changed is the removal of the requirement for the initial investment of $345,000 to only come from U.S sourced investments.  We believe this puts an undue burden on the startup founders’ ability to take advantage of the parole opportunities because founders of startup companies are: (1) more likely to obtain their initial seed financing from those around them in their local jurisdictions, and (2) less likely to be able to tap into the investment opportunities in the U.S. unless they are physically able to travel to the U.S. and present to the potential investors in person, which can only happen AFTER they obtain the parole visas.  Encouraging founders to bring in investments from their local foreign investors into new U.S. based startup companies is also great for the U.S. economy, and will only result in more investments and job creation for the American people.

We would also like to see a more transparent and consistent decision making process and, therefore, we have recommended that a separate Advisory Board constituting of technical experts and successful entrepreneurs be set up to advise and oversee USICS processing of applications for parole visas under these Rules.

We hope that, working with the global startup community and the U.S. Administration, we are able to influence the rules so that they serve as a magnate for attracting the strongest entrepreneurs and investors from across the world in setting up their ventures in the United States, while allowing deserving founders a pathway to raising capital from the world’s largest source of venture capital investments in and around silicon valley.

 

Rule recommendations contributed by Anil Advani, Founder and Managing Partner of Inventus Law. You can follow Anil on Twitter @advani_anil

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