The Obama Administration drafted The International Entrepreneur Rule (IER) two days before Donald Trump’s inauguration. This was a reaction to the inability of Congress to pass immigration reform measures. The rule was meant to make it easier for possible entrepreneurial immigrants to make a start in the country via a parole measure. Individuals who plan to invest and put up a company in the US can stay for up to five years. They just need to meet certain criteria. Congress thought of this as a presidential overreach.
IER Opposed by the DHS
The Department of Homeland Security has been instrumental in blocking its implementation and requests to rescind it.
The International Entrepreneur Rule was a last-ditch effort to allow entrepreneurs to enter the US. There are certain conditions to qualify for the parole. The applicant has to have at least 10% equity in his company, and at least an additional $250,000 investment from a qualified investor, or a minimum of $100,000 funding from a qualified government grant or award. It gives him parole to stay in the country for at least two-and-a-half years. During that time, the company should be successful, must have five qualified jobs, with annual revenues of more than $500,000.
The requirements for the International Entrepreneur Rule were lower than the requirements for an investor visa. Ideally, this helps improve the number of small tech companies started by foreign entrepreneurs. During the time that the International Entrepreneur Rule was in force, there had only been twelve applicants. None of them qualified, according to the regulations.
The DHS, after the shutdown of the program, stood its ground that it’s not only an abuse of authority with the parole, it is also not the intended way to use the parole. In addition, the administration is going through a crackdown on immigration. The current sentiment about it is that additional people coming in will mean more jobs going to foreigners instead of the Americans. Some consider the International Entrepreneur Rule as another immigration loophole which grants foreigners permission to remain in the country for short-term jobs.
The Need for an Alternative to the International Entrepreneur Rule
The International Entrepreneur Rule is not without any disadvantages. After approval, the entrepreneur has to make the company work within two-and-a-half years. If successful, the entrepreneur has another 2.5 years for more improvements. Within the 2.5 to 5 years, if he cannot find a way to have a green card or a visa, he has to leave. The International Entrepreneur Rule does not grant green cards. If the entrepreneur leaves, the company still stays, but there is that question of who will manage it.
The International Entrepreneur Rule implementing guidelines, unfortunately, do not discuss these issues.
The original intent of the International Entrepreneur Rule was to solicit new applications from entrepreneurs to build startups in the country. Other countries, including Canada, Chile, Cyprus, Latvia, Lithuania, Singapore and the United Kingdom, have already implemented this idea.
Startups by foreign-born, or children of foreign-born Americans, have had a big impact on the economy. In 2017, the top 500 companies in the country generated $12.1 trillion in revenues. Companies started by immigrants or the children of immigrants constitute more than 40% of the earnings. Among the biggest names are Google, eBay, Yahoo, Tesla, AT&T, and others.
Sergey Brin and Larry Page founded Google. Brin was born in the former Soviet Union and was brought to the United States at the age of six. Pierre Morad Omidyar, the founder of eBay, was born in Paris, France and is of Iranian descent. Jerry Yang, a Taiwanese-American, co-founded Yahoo in 1995. Elon Musk, co-founder of Tesla, was born in South Africa. Musk is also the founder of SpaceX, the Boring Company, and co-founder of Neuralink. Alexander Graham Bell, a Scot, founded the Bell Corporations, the predecessor of AT&T. Max Levchin and Peter Thiel co-founded PayPal. Levchin was born in the Ukraine and Thiel was born in Germany.
Even outside of the current Fortune 500 companies, immigrants have been starting tech companies. An example is Philippe Kahn, the founder of Borland, and three other companies. He is also the founder of Starfish, the first cellphone camera company. Kahn took the first ever picture from a cellphone camera, when he photographed the birth of his son. He also founded PictureMail which enabled sharing cellphone pictures via email.
The immediate impact of new immigrants to tech startups cannot be overstated. More than half of the top 25 firms on the Fortune 500 list were also formed by immigrants, with more than 12.8 million total employees worldwide. This is the kind of dynamism and entrepreneurship which some in congress would want to nurture.
The Startup Act
Notwithstanding the International Entrepreneur Rule, Congress has forwarded an alternative called the “Startup Act.” This was re-introduced for discussion in September 2017. Senators Jerry Moran (R-KS), Mark Warner (D-VA), Roy Blunt (R-MO) and Amy Klobuchar (D-MN) wrote the Startup Act. According to them, startups have declined to about half during recent decades. The Startup Act will include visa provisions for 75,000 new legal immigrants. Immigrants will undoubtedly flock to the US with the number of visas that will be provided for entrepreneurs. The incentives are also promising.
There is only a finite amount of money around for entrepreneurs to invest in startups. In the same manner, there is fierce competition to entice new talent from abroad to invest in US countries.
There are other ways to attract investment. However, these other methods only work for large companies willing to expand within a country and employ local talent. These are usually established companies with mature product lines looking to sell and profit from the host company. The founder would remain in their own country, and the company would retain their corporate identity.
Having a foreign company operating within a host country would mean that earnings would be to the credit of the mother company and country. Revenues would be sent abroad. This is the current state of foreign manufacturing plants, as well as global franchises. The businesses are off-shore, and the company can harvest earnings remotely. However, when an immigrant becomes successful with his startup, he should be able to get a visa or a green card and become a permanent resident.
Practically, importing entrepreneurs has similarities and differences with H-1B visa holders. First off, immigrants under the H-1B visa program are a measure to fill up the requirements for technical people. There is a marked shortage of technical and IT personnel, which is needed by companies in almost all industries. The educational system does not have enough in the pipeline, and the demand is outstripping the supply. The same is true for entrepreneurs. Bringing the entrepreneurs into the country may alleviate the decline in startups. The Startup Act may prove to reverse the trend and spur growth in new startups.
The insistence on attracting entrepreneurs is not only to attract new talent, but also to have them start new ideas in the U. S. or the host country. New ideas and new talent in a startup is a potential seed for growth. This is betting that at least one of these startups grow to become an Amazon, Google, or Yahoo.
Another advantage of foreign entrepreneurs is the diversity they bring. One of the current issues with American startups is the lack of diversity in tech. Cultural diversity promotes different ways of thinking. This may be more important than the amount of money brought in through the investments. The diversity, which is automatically inherent in companies founded by immigrants or immigrant children, has proven to be a powerful engine for growth.