Updates to the International Entrepreneurial Rule and Data Related to the Program

In 2017, prior to leaving office, the Obama Administration published a final regulation creating the International Entrepreneur Parole Rule (IER). The IER permits  the Department of Homeland Security (DHS) to use its discretionary authority to grant a period of authorized stay, known as “parole,” to eligible foreign entrepreneurs. This temporary stay is intend for those whose start-ups have a substantial potential for rapid growth and job creation. The rule aims to provide a pathway for  talented entrepreneurs to contribute to the U.D. economy while creating new business ventures. Since 2017, this program has been underutilized because of the stringent requirments set forth, but recent updates by USCIS aim to provide clarity in the hopes of increasing use. These new updates, put on USCIS’ website in July 2024, come a little over a year after the previous updates to the USCIS policy manual which are discussed here.

General Eligibility Criteria for IER

To qualify for the IER, foreign entrepreneurs must meet specific criteria:

1. Recent Formation of the Start-up: The entrepreneur’s start-up entity must have been formed within the last five years before applying.
2. Ownership and Leadership: The applicant must possess at least a 10% ownership stake in the start-up and play a central and active role in its operations.
3. Substantial Capital Investment: The start-up should have received significant investment from qualified U.S. investor(s) (at least $264,147) or obtained substantial government grants or awards (at least $105,659). 
4. Potential for Growth and Job Creation: The start-up must demonstrate potential for rapid growth and job creation.

While most of those criteria are not overly burdensome, what is burdensome is the “required U.S. investor” portion of the IER.  To qualify for the IER, you cannot, yourself, be the sole investor. You must have a qualified US investor. A qualified US Investor is described as:

• An individual who is a US citizen or lawful permanent resident, or an organization that operates through a legal entity organized under the laws of the United States or any state, that is majority owned and controlled, directly and indirectly, by U.S. citizens or lawful permanent residents of the United States;
• That regularly makes substantial investments into start-up entities that subsequently exhibits substantial growth in terms of revenue or job creation; and
• During the preceding 5 years
  • Made investments in start-up entities in exchange for equity, convertible debt, or other securities for a total in such 5-year period of no less than a certain investment amount (currently $633,952) and
  • After such investment, at least two entities created at least 5 qualified jobs or generated revenue of at least a certain amount (currently $528,293), with average annualized growth of at least 20%.

To make the definition of even more restrictive, a qualified investor cannot be:

• You or any immediate relatives
• An organization in which you or your immediate relatives have a direct or indirect ownership
• Or entities that are barred from participation in various sales or securities programs

Recent Data about the International Entrepreneurial Rule

Stuart Anderson from Forbes recently published an article detailing information obtained from the National Foundation for American Policy about the IER. The data shows that since FY 2021, there have been a total of 94 receipts of Form I-941s, the form used to apply for the IER. Of these 94 receipts, only 26 have received approvals while 28 have been denied and 19 withdrawn. In the article, Anderson address a recent case where the process took so long that the investor just chose to move to Canada instead. This data shows that is an underutilized, especially when the 2017 rule estimated that 2,940 entrepreneurs would be eligible for the parole annual and could use the rule.

What New Information has DHS Published about the International Entrepreneurial Rule

Last week, USCIS published new information and answers common questions for the IER to include FAQs on threshold criteria for the entrepreneur and the start-up entity as well as alternative criteria for funding. While the list of FAQs is extensive here are some of the interesting questions and answers USCIS has provided as it attempts to jump start this rule.

1. What types of evidence can an entrepreneur submit to demonstrate that an investor in their start-up entity meets the definition of a “qualified investor”?
2. The regulation defines the term “qualified investor” to include an organization located in the United States and that operates through a legal entity organized under the laws of the United States or any state that is majority owned and controlled, directly and indirectly, by U.S. citizens or lawful permanent residents.

Although we do not require the applicant to establish that at least 50% of the capital contributed to the fund is sourced from U.S. citizens or lawful permanent residents, the applicant must nevertheless show that the firm is majority owned and controlled, directly and indirectly, by U.S. citizens or lawful permanent residents. For example, we recognize that many investment firms based in the United States, such as venture capital firms, have a wide range of funding from limited partners that vest control in U.S. citizen partners who manage and even “control” the fund.

The applicant must also establish, among other things, that the investor has a successful history of accomplishment making investments in start-up entities, and that the investment is a good faith investment of lawfully derived capital.

1. Can government awards or grants be from nations outside of the United States?
2. No. Awards or grants from foreign government entities are not considered qualified government awards or grants under the International Entrepreneur Rule.

How can I demonstrate that my start-up entity has received a qualified investment?

• Equity purchase agreements;
• Convertible debt agreements;
• Equity certificates;
• Equity ledgers;
• Capitalization tables;
• Audited financial statements;
• Bank records;
• Wire transfers; and/or
• Other evidence that the investment is a purchase from the start-up entity of its equity, convertible debt, or other security convertible into its equity commonly used in financing transactions within such entity’s industry.

How can I demonstrate that the investor has an established record of successful investments in other start-up entities?

• Equity purchase agreements;
• Tax and/or payroll records;
• Bank records;
• Wire transfers;
• Convertible debt agreements;
• Equity certificates;
• Equity ledgers;
• Capitalization tables;
• I-9 records;
• Audited financial statements;
• Information from news articles or websites that provide relevant employment and/or revenue information about these other start-up entities;
• Information from news articles or websites relating to the investor’s previous investments and subsequent success of the start-up entities, including information from the investor’s website; and/or
• Other evidence that the investor, during the preceding 5 years:

1. How long does it take to process an International Entrepreneur Rule application?
2. As of May 2024, we have either completed or sent a Request for Evidence for all previously filed Form I-941 applications and associated Form I-131 applications. We look forward to adjudicating new applications as expeditiously as possible.
3. What if my start-up entity does not reach the monetary thresholds for “qualified investment” or “qualified government award or grant” described above?
4. If the start-up-entity has raised less than $264,147 of “qualified investment” and/or less than $105,659 of “qualified government awards or grants,” the applicant may still be able to demonstrate “substantial potential for rapid growth and job creation” through alternative reliable and compelling evidence.

The International Entrepreneur Rule recognizes that reliable and compelling evidence of the start-up entity’s “substantial potential for rapid growth and job creation” may vary depending on the nature of the business and the industry in which it operates. Therefore, applicants providing other reliable and compelling evidence of the start-up entity’s potential are not limited to certain types of evidence.

This additional supporting evidence may include, but is not limited to:

• Evidence of rapid growth, such as:
  • Number of users or customers;
  • Revenue generated by the start-up entity; and
  • Additional investments/fundraising, including crowdfunding platforms;
• Social impact of the start-up entity;
• National scope of the start-up entity;
• Positive effects on the start-up entity’s locality or region;
• Success using alternative funding platforms, including crowdfunding platforms;
• The applicant’s academic degrees;
• The applicant’s prior success in operating start-up entities as shown by patented innovations, annual revenue, job creation, or other factors;
• Selection of the start-up entity to participate in one or more established reputable start-up accelerators or incubators; and
• Any other reliable and compelling evidence that the start-up entity has substantial potential for rapid growth and job creation.

Conclusion

The recent updates to the International Entrepreneur Rule (IER) signify a concerted effort by USCIS to clarify and enhance the rule’s framework, aiming to attract and retain talented entrepreneurs in the U.S. economy. By addressing common questions and providing detailed guidelines, USCIS hopes to alleviate some of the burdensome requirements that have previously hindered the program’s utilization. The new FAQs and criteria modifications are designed to offer alternative pathways for demonstrating a start-up’s potential for growth and job creation, thus broadening the scope for eligible applicants.

Despite these positive changes, the program remains underutilized, as evidenced by the low number of applications and approvals since its inception. The stringent requirement for a “qualified U.S. investor” continues to be a significant barrier for many foreign entrepreneurs. However, by fostering a better understanding of the program and its requirements, USCIS aims to increase participation and support innovative start-ups that can drive economic growth and job creation in the U.S.

The IER’s success will ultimately depend on the ability of USCIS to process applications efficiently and the willingness of foreign entrepreneurs to navigate its complexities. If these updates succeed in making the program more accessible and appealing, the U.S. could see a surge in entrepreneurial activity, bringing fresh ideas, new businesses, and significant economic benefits. The future of the IER lies in its ability to adapt to the needs of the global entrepreneurial community and to support the next generation of business leaders in their quest to innovate and excel in the U.S. market.

Reddy & Neumann, P.C., located in Houston, Texas, has been serving the business community for over 25 years and is Houston’s largest immigration law firm focused solely on U.S. Employment-based immigration. We work with both employers and their employees, helping them navigate the immigration process quickly and cost-effectively.

By: Steven Brown

Steven Brown is a Partner at Reddy Neumann Brown PC where he works in the Non-immigrant visa department and leads the Litigation Team. His practice covers all phases of the non-immigration visa process including filing H-1B, L-1, E-3, H-4, and H-4 EAD petitions. In the last two years, Steven has successfully handled over 1,000 non-immigrant visa petitions including filing petitions, responding to any necessary Requests for Evidence, and drafting motions and appeals. He has also become a key resource for F-1 students that seek guidance on properly complying with the F-1 visa regulations and any OPT or CPT issues they may have. Additionally, Steven holds a weekly conference call for companies that are part of one of the largest organizations for IT Services companies in America.