Tag Archive for: Entrepreneurs In Residence Initiative

Cyrus Mehta

THE BLOCKING OF AN ENTREPRENEUR: A BROKEN IMMIGRATION SYSTEM AT WORK

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3D printing technology is about to revolutionize the way we understand manufacturing, and the country that takes the lead in this new technology will be the winner ofwhat The Economist magazine has called the third industrial revolution. A state of the art hearing aid or a high tech component for a military jet can be designed through a computer and printed on an unattended 3D printer as a solid functioning object.

Yet, the US Customs and Border Protection on the Canadian border recently refused admission to a dual national Canadian/British entrepreneur JF Brandon who is part of a startup called D Shape – which has developed a large-scale 3D printer that will revolutionize the way architectural design is planned, and building constructions are executed. By simply pressing the “enter” key on the keypad D Shape gives the architect the possibility to make buildings directly, without intermediaries who can add interpretation and realization mistakes.

Although refused entry into the United States, Mr. Brandon participated in a panel discussion on February 13, 2012 at Brooklyn Law School in New York entitled Immigration Policy and Entrepreneurship: Challenges and Pathways for Startups. Thanks to technology that has now become so routine, he could participate through Skype from overseas, and told a riveted audience that he had been refused entry under a NAFTA TN visa to work for D Shape in New York, which is limited to certain occupational categories and applies to Canadian and Mexican citizens. For an individual who wishes to work in a business related field, the only TN occupational classification is “Management Consultant,” but the CBP official did not think Mr. Brandon would fall under this category as he would be more of a “Manager,” which is not a TN classification. Although he will try again for a TN visa, the H-1B visa category is more obvious,  which allows one to work in many more professional fields, but there are no H-1B visa numbers left for this fiscal year. If he applies for one, he will have to wait until October 1, 2013 to get in, and that too if he is lucky enough to get selected in the event that the USCIS receives more than the allotted 65,000 H-1B visas during the first week April 2013 – the first month when employers can file H-1B visas for an effective start date of October 1, 2013.  Other than the H-1B visa, there are few options for enterprising foreign entrepreneurs. The O-1 visa is limited to foreign nationals who can demonstrate extraordinary ability in their fields through sustained national or international acclaim. The L-1 visa is available to intra-company executives, managers or specialized knowledge employees who have been working for an affiliated overseas company for one year in the same capacities. The E-2 visa, applies to nationals of a few countries that have as treaty with the US (and Canada is one of them), but it requires the entrepreneur to make a substantial investment.

I was honored to be on the distinguished panel last week, along with Jeremy Robbins who is Director of the Partnership for a New American Economy and Special Advisor to Mayor Bloomberg, Michael Wildes, Partner of Wildes and Weinberg PC and Owen Davis, Venture Capitalist, Director of NYC Seed.  The moderator was Professor Jonathan Askin, who is the Director of the innovative Brooklyn Law Incubator Policy Clinic, which also sponsored the program along with New York Legal Hackers. Apart from the wonderful ambience and engaging audience –and there was jazz at the beginning and end of the program – the panelists generallypainted a grim picture of the visa options available to foreign entrepreneurs who wish to develop startups in the US. Indeed, Mr. Davis said that NYC Seed would be reluctant to fund foreign national entrepreneurs due to the inherent risks and uncertainties caused by the immigration system. Mr. Wildes described the many immigration options that exist in the US immigration system, but then qualified that it would be very difficult for an entrepreneur to take advantage of them. Under the H-1B visa program, for example, the USCIS insists on the need to show that the H-1B worker’s employment will be controlled by the employer, which will be difficult in the case of startup owned by the foreign national. This obstacle is in addition to the fact that H-1B visa numbers run out even before the start of the fiscal year. Even the E-2 visa is limited to nationals of treaty countries, according to Wildes, which does not include any of the dynamic BRIC (Brazil, Russia, India and China) countries.  I pointed out that there may be new hope, even amidst the bureaucratic “culture of no” mindset, in the USCIS’s new Entrepreneurs in Residence Initiative, where immigration officers have been trained to recognize the unique nature of startups, such as operating in stealth mode or not having an established office space. Control of employment may also be shown in other ways, through the need to maintain a separate existence between the corporation and the shareholder, as well as the possibility of minority shareholders exercising control through shareholding agreements or through their latent power to seek dissolution based on egregious conduct by the majority shareholders.  Mr. Robbins highlighted the political realities, which means that a new Startup Visa will only be enacted be when Congress rolls out a Comprehensive Immigration Reform bill.  Despite the importance of foreign entrepreneurs, and the fact that America knows best how to nurture entrepreneurship, there is little chance of a Startup Visa Act in the absence of Comprehensive Immigration Reform.

The take away from this program is that we clearly need Congress to create a Startup Visa rather than entrepreneurs using existing visas that were not designed for them, but those legislative proposals will flounder unless they are included in a Comprehensive Immigration Reform (CIR) bill.  One version of a Startup Visa would require the entrepreneur to invest a minimum of $100,000 in order to get a two year green card. To keep the green card past two years, the founder would need to create five jobs and either raise at least $500,000 in additional funding or $500,000 in revenues. Even if Congress enacted a Startup Visa, these requirements could be rather burdensome for a nimble entrepreneur who could still launch a successful business without an initial $100,000 investment. Thus, a CIR proposal can also tweak some of the existing visa categories to make it easier for founders to remain in the US as nonimmigrants and provide alternative pathways, such as by relaxing the element of control in the H-1B visa and also allowing a majority shareholder to be sponsored for a green card through the labor certification program. The well-intended guidance for entrepreneurs under existing visa categories should also be part of reform legislation rather than remain as mere guidelines that run the risk of not being followed by an immigration officer.  Otherwise, we will have initiatives like Blueseed, which envisages a ship in international waters off Silicon Valley that will serve as an incubator for foreign entrepreneurs to develop their startups without needing to get a US visa. They can visit shore briefly on a B-1 business visa for meetings, and then return to the ship to work at their startup. To add to the uniqueness of the entrepreneur and immigration program in Brooklyn, the founder of Blueseed, Dario Mutabdzija, also participated through Skype. I have a feeling that Blueseed will succeed even if we have CIR as there will always be entrepreneurs who may not be able to take advantage of onerous visa options in the early stages of the startup.

Finally, from my experience as a practitioner, I have seen that immigrants from all backgrounds can become entrepreneurs, and it is not necessary that only graduates from STEM (Science, Technology, Engineering and Math) programs will succeed with startups. A lesser educated immigrant with burning ambition, such as a cook, can one day start a restaurant chain just as a Ph.D in Engineering can develop the next generation 3D printer.  Both create more jobs – and America could also enjoy more cultural diversity through the businesses of foreign entrepreneurs.As I recently tweeted on Twitter, “We need both brilliant STEM and delectable tandoori chicken in America.” Thus, if the political reality is to include startup visa options in CIR, let’s bring it on sooner than later so that American will be able to benefit from the talents of foreign entrepreneurs of all backgrounds and stripes.

Cyrus Mehta

The Sweet Smell of Success: H-1B Visas for Entrepreneurs

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By Gary Endelman and Cyrus D. Mehta

The title of this blog may seem odd as the H-1B visa is usually associated with an employee who earns a regular wage at the prevailing rate. Yet, entrepreneurs may benefit from the H-1B. Since the USCIS recently set up an Entrepreneur Pathways Portal inviting entrepreneurs to use existing nonimmigrant visas, including the H-1B visa, an analysis on how the H-1B visa can be legitimately exploited by entrepreneurs is worthy of further  exploration.

At the outset, it is worth noting that law is neither applied nor interpreted in a vacuum but is suffused with the attitudes and assumptions of the adjudicator. The same is true here. What does the USCIS want to achieve through its new embrace of foreign entrepreneurs? What is its end goal? Does it accept the legitimacy of the H-1B and does it believe that its proper application or deployment will be in the national interest? Unless we know these things first, no formula or set of legal guidelines can result in a proper, informed decision.  In the end, unless and until the moral and ethical legitimacy of employment based immigration is both embraced and appreciated, there will not be the intellectual flexibility necessary to help entrepreneurs reach their dreams.

Last week’s blog summarized the nonimmigrant options for entrepreneurs suggested in Entrepreneur Pathways, and it also speculated whether this new welcoming embrace of foreign entrepreneurs may possibly change the “Culture of No” within USCIS, whose officials generally places a small business under a fraud profile. A startup may be even more rudimentary than an established small business and thus more susceptible to being viewed as a fraudulent artifice. Startups may not yet be generating a revenue stream as they are developing new technologies that may lead to products and services later on. Many have received financing through venture capital, angel investors or through “Series A and B” rounds of shares. Startups may also operate in more informal spaces, such as the residences of the founders (with regular meetings at Starbucks) instead of a commercial premise. Some are also operating in “stealth mode” so as not to attract the attention of competitors and may not display the usual bells and whistles such as a website or other marketing material. Startups may also not have payroll records since founders may be compensated in stock options. Still, such startups are legitimate companies that should be able to support H-1B, L, O or other visa statuses. While, in the past, USCIS has often been accused by critics of harboring a systemic bias against small business, Entrepreneur Pathways holds out the promise of a new and more welcoming attitude. The degree to which this flexibility will operate in practice will depend, in large measure, on the extent to which emerging companies and inventive business strategists press their case for immigration benefits.

Regarding the H-1B visa, it is true that 8 CFR § 214.2(h)(4)(ii) requires the existence of an employer-employee relationship, which includes the employer’s ability to “hire, pay, fire, supervise, or otherwise control the work of such employee.” Can the startup owner be able to sponsor himself or herself on an H-1B through the startup? The USCIS portal is surprisingly receptive, but still limited by the rigid methodology and narrow assumptions of the Neufeld Memo that elevates the right of control over all the other factors set forth in the regulation, such as the right to hire, pay, fire or supervise the employee. Still, the USCIS suggests that a startup may be able to demonstrate this if the ownership and control of the company are different. This can be shown through a “board of directors, preferred shareholders, investors, or other factors that the organization has the right to control the terms and conditions of the beneficiary’s employment (such as the right to hire, fire, pay, supervise or otherwise control the terms and conditions of employment).” Some of the suggested evidence could include a term sheet, capitalization table, stock purchase agreement, investor rights agreement, voting agreement or organization documents and operating agreements. Not only can observance of corporate formalities serve legitimate business interests and avoid the “piercing of the corporate veil”, by providing the patina of control over individual initiative they may also serve to convey immigration benefits.

The ethos of any new business idea is change, an unwillingness to sacrifice creativity and growth on the alter of certainty.  It is the preference for certainty, however, most notably reflected in the Neufeld Memo that  may make it difficult for the 100% owner of a startup to successfully obtain an H-1B visa. If the beneficiary has not only conceptualized the business, but also invested only her own capital, it will be difficult for her to have a board of directors that can have the ability to discipline or fire her. Indeed, noted attorney David Ware asks a good question: “What entrepreneur in his or her right mind is going to invest blood, sweat and tears, not to mention money, in an entity holding this power?”  If we expect the entrepreneur to take a chance, must not the USCIS itself accept some measure of risk?  Concern over fraud, while totally legitimate, must be balanced against no less compelling concerns for allowing the honest expression of commercial imagination.

Although Mr. Ware’s point is well taken, we caution against being completely dismissive of the USCIS effort to welcome entrepreneurs, especially the H-1B visa, which one can have more access to over other visas such as the O-1, E-2 or L-1A. The agile practitioner should invoke old decisions that recognize the separate existence of the corporate entity. It is well established that a corporation is a separate and distinct legal entity from its owners and stockholders. See Matter of M, 8 I&N Dec. 24, 50 (BIA 1958, AG 1958); Matter of Aphrodite Investments Limited, 17 I&N Dec. 530 (Comm.1980); and Matter of Tessel, 17 I&N Dec. 631 (Act. Assoc. Comm. 1980).  As such, a corporation, even if it is owned and operated by a single person, may hire that person, and the parties will be in an employer-employee relationship. This point needs to be brought out when advancing an H-1B for an entrepreneur. Still, we acknowledge that the H-1B petition may have more success when there is another investor or shareholder, and the beneficiary is not the sole owner of the entity. That person may be able to exercise control over the H-1B beneficiary, even if he or she has a minority interest. It may not be necessary to show that the other individual or entity has the power to discipline the beneficiary, but only that this person can exercise negative control over the beneficiary’s decisions. There is nothing preventing the other individual from being a family member, and the shareholder or director also need not be residing in the US.

There are other difficulties for an H-1B entrepreneur that may be beyond the USCIS’s control. Every H-1B petition must be accompanied by a certified Labor Condition Application from the DOL. Under an LCA, the employer attests that it must pay the beneficiary the higher of the prevailing or actual wage, and must also do so on a regular prorated basis. In a startup, there may be no revenue stream to pay the entrepreneur initially. Thus, unless the startup is sufficiently capitalized through venture capital or other forms of financing that can ensure a steady stream of income to the H-1B beneficiary at the required wage, the petitioning entity may be in violation of the DOL rules if it cannot guarantee a regular prevailing wage.

Also, a DOL rule at 20 CFR § 655.731(c)(9)(iii)(C) states that any attorney fees paid by the H-1B beneficiary will be viewed as a lowering of the required wage that the employer is required to pay the beneficiary. There is also a prohibition of the employee paying the training fee of $750 or $1,500. In the case of a startup, where the H-1B beneficiary has invested his own money into the enterprise, the fact that the petitioning entity makes these payments ought not to be viewed as a violation of the DOL rules regarding impermissible payments. Since it is the entity that is making these payments, which is considered separate from the beneficiary, and which also controls the beneficiary, it should not be viewed as impermissible. Otherwise, there is no way that the USCIS can promote the H-1B to entrepreneurs.

Even if an H-1B founder of a company successfully establishes that the entity can control her employment through a board of directors or through preferred shareholders, the USCIS could likely challenge whether a position in a startup, where the beneficiary may be wearing many hats, can support a specialized position. The H-1B visa law requires the petitioner to demonstrate that a bachelor’s degree in a specialized field is the minimum qualification for entry into that occupation. Also, positions in innovative startups may not necessarily fit under the occupations listed in the Department of Labor’s Occupational Outlook Handbookbut may yet require at least a bachelor’s degree. It is hoped that USCIS examiners are trained to be receptive to other evidence to demonstrate that the position requires a bachelor’s degree. Furthermore, an MBA degree should be considered a specialized degree in itself since many MBA programs at top business schools focus on entrepreneurship and other fields, such as technology or web analytics, which equip one to be a successful entrepreneur. The very notion of specialized occupations has and will continue to change as the pervasive impact of technology in the Internet Age makes itself felt at all levels of economic activity.

While there are insurmountable hurdles for H-1B entrepreneurs, it is hoped that the USCIS will make every effort for the program to work for them. The H-1B is the most accessible visa to a foreign student as the E-2 visa only applies to nationals of limited countriesthat have a treaty with the US, and none of the BRIC countries have such treaties. Very few entrepreneurs can qualify as extraordinary under the O-1 and the L-1A visa would only apply to an individual who has been employed overseas for one year in the past three years in an entity that has a parent, subsidiary, affiliate or branch in the US. It also raises a larger question: How can we use US immigration policy not merely to preserve the status quo but actually create wealth and jobs? For it to work successful, USCIS officials have to examine and approve cases consistent with this objective. The problem goes beyond the “Culture of No.” The USCIS should think of immigration in a strategic sense as a mechanism to create wealth and expand the economy. Presently, USCIS thinks in static terms so naturally the focus is on protecting what now is and judging people not by their potential but by their documented accomplishments. USCIS, on the other hand, should think like an entrepreneur so as to avoid a dissonance or disconnect between the regulators and those whom they regulate. The USCIS Entrepreneur in Residence program, from which the Entrepreneur Pathways portal has ensued, appears to be a step in the right direction. Only time will tell whether it will truly serve the needs of entrepreneurs. The willingness of the entrepreneur to take risks must be matched in full measure by an immigration system that also embraces the value of innovation. As T.S Elliot famously reminded us: “Only those who risk going too far can possibly find out how far it is possible to go.”

Cyrus Mehta

New Portal Welcomes Entrepreneurs to the USA: But Will this Change the Culture of “No” at USCIS

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Consistent with its earlier policy of welcoming entrepreneurs, the USCIS launched a new portal called Entrepreneur Pathways providing resources on how foreign entrepreneurs can use existing visas to launch their innovative startups in the US.  The portal is quite good, and it is hoped that USCIS officials retreat from their culture of “No” and process cases in the spirit of this new guidance.

At the outset, we clearly need Congress to create a Startup Visa rather than entrepreneurs using existing visas that were not designed for them, but those legislative proposals are still floundering. One version of a Startup Visa would require the entrepreneur to invest a minimum of $100,000 in order to get a two year green card. To keep the green card past two years, the founder would need to create five jobs and either raises at least $500,000 in additional funding or $500,000 in revenues. Even if Congress enacted a Startup Visa, these requirements could be rather burdensome for a nimble entrepreneur who could still launch a successful business without an initial $100,000 investment.

There are enough opportunities under our existing immigration law for entrepreneurs who may not need to make such a high investment in their startup. The existing visa system if interpreted broadly, together with the Startup Visa, would provide a welcoming environment for job creating foreign entrepreneurs in the US. The new portal shows the way on how entrepreneurs can use the existing immigration system to set up ventures in the US and possibly even flourish. While these ideas have been used by creative immigration attorneys on behalf of their clients from time immemorial, it is good to know that the portal validates them, largely based on the input that the USCIS received from real entrepreneurs through its Entrepreneur in Residence initiative. Most important, the EIR has endeavored to train USCIS officers about the unique aspects of a startup business. It is hoped that USCIS officers, after receiving such training, will change their mindset and be willing to distinguishing a legitimate startup from a fraudulent artifice.

For instance, startups may not yet be generating a revenue stream as they are developing new technologies that may lead to products and services later on. Many have received financing through venture capital, angel investors or through “Series A and B” rounds of shares. Startups may also operate in more informal spaces, such as the residences of the founders (with regular meetings at Starbucks) instead of a commercial premise. Some are also operating in “stealth mode” so as not to attract the attention of competitors and may not display the usual bells and whistles such as a website or other marketing material. Startups may also not have payroll records since founders may be compensated in stock options. Still, such startups are legitimate companies that should be able to support H-1B, L, O or other visa statuses.

The portal suggests that if a foreign student has a “Facebook” type of idea, he or she can start a business while in F-1 Optional Practical Training provided the business is directly related to the student’s major area of study. After completing F-1 OPT, this student can potentially switch to H-1B visa status (provided there are H-1B visa numbers at that time). Regarding the startup owner being able to sponsor himself or herself on an H-1B, the USCIS is surprisingly receptive, but still obsessed with the Neufeld Memo that there must be a valid employer-employee relationship and that the entity has a right to control the employment. Still, the USCIS suggests that a startup may be able to demonstrate this if the ownership and control of the company are different. This can be shown through a board of directors, preferred shareholders, investors, or other factors that the organization has the right to control the terms and conditions of the beneficiary’s employment (such as the right to hire, fire, pay, supervise or otherwise control the terms and conditions of employment). Some of the suggested evidence could include a term sheet, capitalization table, stock purchase agreement, investor rights agreement, voting agreement or organization documents and operating agreements.

Even with intra-company transferee L-1 visas for executives and managers, the portal recognizes that an entrepreneur may establish a “new office” L-1 (which could be a subsidiary, parent, affiliate or branch of the foreign company) with a validity period of one year, which allows a ramp up period where the entrepreneur can be involved in “hands on” tasks instead of function as an executive or manager. After the one year ramp up, the organization must be able to support the entrepreneur in a true managerial or executive capacity. The portal also refreshingly suggests that entrepreneurs who can demonstrate extraordinary ability in their field of endeavor can take advantage of the O-1 visa, and can set up a company who can sponsor them. Interestingly, there is no mention of the control test for the O-1 visa like for the H-1B visa. Finally, the portal also provides guidance for nationals of certain countries that have a treaty with the US, which facilitates the E-2 investor visa.

All this looks good on paper (rather online!), and it remains to be seen whether USCIS officers will faithfully interpret this guidance. Even if an H-1B founder of a company successfully establishes that the entity can control her employment through a board of directors or through preferred shareholders, the USCIS could likely challenge whether a position in a startup, where the beneficiary may be wearing many hats, can support a specialized position. The H-1B visa law requires the petitioner to demonstrate that a bachelor’s degree in a specialized field is the minimum qualification for entry into that occupation. Also, positions in innovative startups may not necessarily fit under the occupations listed in the Department of Labor’s Occupational Outlook Handbook but may yet require at least a bachelor’s degree. It is hoped that USCIS examiners are trained to be receptive to other evidence to demonstrate that the position requires a bachelor’s degree. Furthermore, an MBA degree should be considered a specialized degree in itself since many MBA programs at top business schools focus on entrepreneurship and other fields, such as technology or web analytics, which equip one to be a successful entrepreneur.

In the end, the success of the Entrepreneur in Residence initiative largely depends on whether the USCIS has been able to alter the mindset of its officials who are in the habit of saying “No.”