How the Gang of Eight Immigration Bill Impacts Startups

After months of waiting, the bipartisan Gang of Eight Senators released an immigration reform bill (full 844 pages here!) The plan we’re seeing today is not only the first real attempt at truly comprehensive immigration reform -- it might also have a shot. The eight Senators included provisions for high-skilled labor that are a testament to the powerful role the tech community has played coming together strongly on this issue.

Despite some areas for improvement, this plan is something the technology community can, and should, rally behind. The new Invest Visa (better known by the community as a Startup Visa) will really encourage smart individuals to start businesses in the United States. In addition, provisions making it easier for students to apply for green cards will encourage the best and the brightest to come to school here and stay, and relieve the pressure on the H-1B system. This bill is also planning for the next generation of innovators with much-needed investments in our own education system.

First Look Key Takeaways:

1. Starting a business is lot easier for foreign founders with two types of Startup Visa

2. Hiring Foreign Talent

• H-1B reform will increase the number of visas available
• Increases in wage requirements do not take into account equity or other benefits, and require startups to pay median wages determined by metro area. This might make it difficult for smaller companies to compete with larger companies -- with deeper pockets -- for top talent.
• More green cards for startup workers through plans to reduce the backlog, and institute new categories: a larger skilled workers employment-based category, and a merit-based category.
• New merit visa includes provisions for entrepreneurs and individuals in high-demand jobs.

Here are the details:

1. Foreign startup founders get a Startup Visa

Currently, there is no visa class for foreign individuals who want to stay in the United States to start a company. This proposal makes it easier by creating an Invest (Investing in New Venture, Entrepreneurial Startups and Technologies) Visa with two categories -- the first is a temporary visa, the second grants permanent residency. Both categories establish reasonable criteria for startup founders as they work to establish their business in this country.

The startup community knows this better as the startup visa. With reasonable requirements and options for renewal, this is a big step in the right direction. Moreover, it gives lifelines to founders whose first venture might have failed. If further investment is forthcoming, the individual can start again. According to the definition for entrepreneur in this section, up to three individuals of the founding team can use this visa.

a) Non-immigration Invest Visa

• 3 year temporary visa

• No numerical caps, or limits to the number of times an individual can renew.

• To qualify, individuals must show $100,000 in investment from an accredited investor, venture capitalist, or government entity.

• Or if the company already exists, the founder needs to prove that they have created at least three jobs and have an annual revenue of at least $250,000.

• For a full 3 year renewal, the company must employ 3 people with annual revenue of $200,000 for two years, or $250,000 of additional investment.

• For 1 year renewals, the founder must show that the company has made progress towards reaching these requirements.

b) Immigrant Invest Visa

• Grants permanent residency to successful entrepreneurs
• Capped at 10,000 annually
• To qualify, individuals must have maintained a valid nonimmigrant status for at least 2 years, and have created 5 or more jobs in the United States. In addition, the entrepreneur must also have either secured at least $500,000 investment or generated at least $750,000 in annual revenue during the previous 2 years.
• For entrepreneurs with a STEM masters or PhD, the requirement to have maintained a valid nonimmigrant status for at least 2 years is the same, and the other requirements are 4 jobs and $500,000 investment, or 3 jobs and $500,0000 annual revenue.

The revenue and employment requirements should allow most successful startup founders to switch to this permanent visa category. For serial entrepreneurs, however, the time it takes to acquire this visa might be cumbersome. In addition, a founder might not be able to sell a successful venture, or start another, while waiting for visa approval.

2. Hiring Foreign Born Talent

Hiring the right individuals is crucial for startups to grow. Through H-1B reform, changes to the green card allocation system, and new merit-based visas, this bill offers a few changes to the current system that will encourage foreign born talent to remain in the country after completing their studies, slowing the brain drain. But, it might make attracting new talent from abroad comparatively more difficult.

a) Expanding the H-1B

• H-1B visa cap raised from 65,000 to 110,000, with an adjustable cap that can go as high as as high as 180,000 based on the High Skills Jobs Demand Index formula.
• This formula uses the number of visa petitions filed and the unemployment rate in the related occupations category of Bureau of Labor Statistics data from the previous year.

The cap increases are necessary, especially after the 124,000 H-1B applications and resulting visa lottery this year. But this is where the bill falls a little short. Since the cap can only be raised by 10,000 annually, H-1B supply might still be unable respond to the demand. We advocate for an H-IB visa cap that is responsive to the needs of the market.

Higher wage requirements for H-1B recipients

• Previously, employers have been required to pay the prevailing wage for the job.
• This bill changes the method of calculating that wage, identifying it by metro area.
• The range for each metro area would be further divided into tiers -- high, average, and low. H-1B employers will be now required to pay at the “average” level.

Despite trying to counter the perceived abuse of wage depression of H-1B system, the change in wage requirements is where this bill could do more harm than good for startups. Though this is not as steep as expected, and we haven’t seen these wage ranges for startup cities, we’re still concerned that this tenet of the bill will make H-1B hires unaffordable for startups, in comparison to larger companies with bigger budgets. Startups, generally clustered in large metro areas, think San Francisco and New York, with already inflated incomes across a large range, may simply not have enough funding to meet the prevailing wage requirement. This provision also does not account for equity or other benefits, so startups with limited budget for payroll might be able to attract talent, but unable to afford it under these new rules.

Reducing the burden on H1-B

• Up to 25,000 advanced degree holders in STEM fields are exempt from the H-1B cap.
• Students on F-1 visas, earning a bachelors degree or above, will be allowed dual intent, i.e. students with lawful status are also permitted to apply for green cards if employment is secured while still at school, and their potential employers can apply an employment-based visa category (see below).

b) More green cards for startup workers

• Per country caps removed
• Deals with backlog of family and employment based visas by making unused visas available, in addition to using the visas allocated for the new merit based system.
• New definition of family to include spouses and children, exempting them from the employment-based visa cap.
• Priority workers (including developers, without advanced graduate degrees) and advanced degree holders will both be allocated 40% of the available visas, up from 28.6%.

This bill makes great strides towards improving the green card system. Many changes will impact individuals who had long waits for green cards as a result of the country caps. The new family definitions will also make a significant difference, considering that spouses and children of green-card holders used 78,000 the 140,000 EB visas that were approved last year.

c) Merit Based Visas

• Takes effect in 5 years
• Replaces the diversity visa
• Capped at 120,000, to increase in in 5% increments, but must not to exceed 250,000.
• Bequeaths permanent resident status
• Divided evenly into two tiers: high skilled workers and low skilled workers
• The first tier is awarded points based on education (PhDs get more points than masters which get more points than bachelors), years of employment and type of occupation based on job zones (determined by the level of education and skill required for an occupation.)
• Additional points for entrepreneurs who employ 2 other individuals in zone 4 (as many points as for a masters degree), and points for individuals with an offer of employment in a high demand job.
• How high demand jobs are determined is unclear.

What next?

The bill will now be debated on the Senate floor with a period of time allocated for members to attach amendments. While it will certainly help that the Gang of Eight is a bipartisan coalition, opposition still lurks, and arguments about border security, American workers, family visas, and the price tag of reform might make their way into the debate. The danger is that high-skilled reform could get caught in the crossfire. Ideally, the bill would be done before the August recess after which Congress switches to campaign mode ahead of the 2014 midterms.

As Senators Schumer (D-N.Y.) and McCain (R-Ariz.) wrote in the Wall Street Journal yesterday, “Like all genuinely bipartisan efforts, this bill is a compromise. It will not please everyone, and no one got everything they wanted.” Still, this plan is starting from a higher base of support than any other we’ve seen yet, and high points for the tech community are the startup visa and pathways to permanent residency. But that doesn’t mean there isn’t for improvement. Join us, and our friends at March for Innovation, and keep the pressure on.