DHS Rule on International Entrepreneurs is Long Overdue

Rapid growth and change in hospitality are creating new opportunities for entrepreneurs, and a rule adopted in the final days of the Obama administration gives non-citizens a way to get in on the act. Known as the “International Entrepreneur Rule,” the rule takes effect July 17, 2017, and allows the U.S. Department of Homeland Security (DHS) to temporarily “parole” into the United States (which differs legally from an “admission”) foreign nationals who have started companies with such a strong potential for rapid growth and job creation as to promise a “significant public benefit.”

Immigrants founded almost 25 percent of all leisure and hospitality businesses from 2007 to 2011.

The devil is in the details of the Rule. To qualify, the start-up must be no more than three years old. The entrepreneur must own at least 15 percent of the business and play a central role. The company must show strong potential for rapid growth and job creation in one of three ways.

First is through recent Capital Investment (equity or convertible debt) of at least $345,000 from U.S. investors (excluding the entrepreneur), such as VC firms, angel investors, or accelerators. Each investor must have invested a total of $1,000,000 in start-ups in the past five years, including investments in each of at least thee calendar years. And, at least two of the recipient firms must have employed five U.S. workers or generated $500,000 and a 20 percent growth rate.

Second is through Government Funding (federal, state or local) totaling at least $100,000 in economic development, R&D or job creation awards or grants.

Third, if the company received some capital investment or government funding but less than required, parole still may be available if there is other “compelling evidence” of potential, such as the entrepreneur’s strong start-up track record.

A successful applicant (and family) can be paroled into the United States for two years, and the spouse can obtain work authorization. Parole can be extended for three more years if the business shows continued substantial potential for rapid growth and job creation. This is no easy task.

During the initial parole period, the company must have:

(1) received $500,000 in additional capital investments and/or government funding;

(2) generated $500,000 annually at a 20 percent growth rate; or

(3) created at least 10 qualifying jobs.  Alternatively, the company can produce other reliable and compelling evidence. By this point, the entrepreneur’s ownership interest can fall to 10 percent, but s/he still must play an active, central role in the business.

While the Rule is a sorely needed first step to attract talented entrepreneurs who might otherwise start businesses overseas, it is not a panacea. The criteria are severe, and parole does not lead to a green card. But, considering that immigrants founded almost 25 percent of all leisure and hospitality businesses from 2007 to 2011, the Rule promises to release a gush of entrepreneurial energy.[1]  President Trump’s Executive Order on Immigration Enforcement directs DHS to restrict its parole authority.[2] Hopefully, the Administration will appreciate the real and significant public benefit of entrepreneurial parole and will retain the Rule.

This article provides a general summary only and is not intended as and should not be taken as legal advice.