Hacker News has been buzzing with the story of Canadian citizen Zak Homuth, who was refused entry earlier in the week by US Customs and Border Protection to participate in Y Combinator with his new startup Upverter.
His own account of what happened suggests that Zak made over-reaching assumptions as to his ‘rights’ to enter the US, that he didn’t have his paperwork in order and that he gave misleading answers to some of the questions the CPB offier asked him. Plenty of discussion on that in the HN comments.
However, the issue does raise a question that I’ve been wondered for some time – can non-US citizens legally participate on Y Combinator with just regular B1 visa or do they actually need a ‘work authorization’ type visa? And if so, is there even a US visa type suitable for legal participation in Y Combinator?
This would be a good time to give the health warning that I am not a lawyer, and all of these thoughts are simply based on my own experiences of working in the US on a visa for the last 5+ years and the knowlege of immigration and visa law that I’ve obtained over the years.
From Y Combinator’s FAQ here are some pertinant facts about participating in Y Combinator related to visas:
- You must physically be in the Bay Area for 3 months during the program
- You must setup a US company (which will either be your startup, or a subsidiary of it)
- Y Combinator will invest a small amount of money ($10k-$20k range) in your new entity for 6-7% equity
- During Y Combinator you will build out your prototype and seek investment
A B1 is the type of business visa most citizens of visa-waiver countries can obtain at the airport when you land (usually having applied for an ESTA online before hand). From Wikipedia’s B1 entry the activities you are allowed to do on a B1 visa are:
- Negotiate and sign contracts
- Purchase supplies or materials
- Hold business meetings or attend/exhibit at a convention
- Settle an estate
- Sit different types of exams and tests held inside the United States
Here are the issues, as I see them:
You are not legally allowed to ‘work’ for the startup on a B1
While seeking investment, and taking the meetings that go with that, would satisfy the first activity type of the B1, building your prototype (ie performing software engineering) while in America doesn’t. Y Combinator’s FAQ mentions that almost all foreign nationals can establish a business in the US – which is true – but you are not legally allowed to work for that entity (be it W2 ’employment’ or 1099 ‘contractor’) without a visa and US work authorization.
You cannot self-sponsor a work authorization visa such as H1b
Depending on who you talk to it is either impossible or incredibly difficult to ‘self-sponsor’ a work authorization visa. Self-sponsor is when you own a majority or controlling stake in the business wishing to sponsor your visa – which if Y Combinator takes a 6-7% equity stake, the founders are still going to be considered to have controlling stakes.
Once you have board of external directors (eg investors) who have the ability to fire you, obtaining this kind of visa becomes more easier – but this of course creates a chicken-and-egg trap because you can’t get those investors until you’ve participated in Y Combinator and if you already have them you are unlikely to be wanting to do YC.
E2 Investor visas (which seem most appropriate here) are no good for venture-backed businesses
The US has a visa category for foreigners wishing to establish a business in the US – E2. It’s relatively easily to get and there’s no quota. You just have to invest $100k+ of your own money. The issue here is that most startups don’t need that kind of money during the very early stages of life, and many entrepeneurs don’t those kinds of funds available anyway. Rules state that the E2 holders can never lose less than 50% controlling stake in their company, and as such you would almost certainly never be able to raise venture capital on those terms as there would be a cap on how much investment you could ever take and no method of exit without nullifying the founder’s ability to continue to work in the US.
It usually takes 6+ months to get any kind of work authorization visa
It depends on which country you live in and the backlog at the local US embassy, but obtaining most work authorization visas can easily take 6+ months. Y Combinator, as I understand it, gives successful candidates only a few months notice at best that they have made it into the program. H1b’s, a common work authorization, have a minimum amount of time between application and date of issue to make absolutely sure the sponsoring company can’t find a suitable US citizen to perform the work (which in itself indicates this is not really an appropriate visa type for a founder).
You must prove there is no immigrant intent
Finally, anyone entering the US without an immigration type visa (B1 is a visitor, non-immigration visa) must prove that they do not have immigrant intent. The onus is upon the individual to prove that they do not, not on CBP to prove that they do.
Establishing a US business with the intention of finding investors to invest, and specifically needing to create a US-based entity because US investors don’t want to invest in foreign based companies, doesn’t particularly lend itself to demonstrating clear non-immigrant intent and that everyone is going to pack up and go home when things are done.
My own anecdotal evidence suggests that most foreign participants in Y Combinator do go on to establish living here in the US.
To be clear – I personally have no problems with people wanting to come and live in the US and create their startup in the US. But I raise this because it’s the open-ended ‘gotcha’ UCIS and CBP use to deny entry so often. How do you exactly prove you don’t have the intention to do something?
So what of it all?
I love Y Combinator. I love startups and entrepreneurs. I am a foreign national living in the US who wishes the visa/worth authorization restrictions on entrepreneurs were a lot more relaxed AND welcoming.
Zak, our original protagonist in this story probably would have got past CBP if he had his paperwork was in order and had been briefed on what to say/what not to say. But that doesn’t mean his participation in YC would have necessarily stayed 100% within the B1 visa type.
And so I remain perplexed as to exactly what visa type foreign nationals wishing to participate in Y Combinator should be on – and in fact whether any of them are actually suitable or applicable.
We all know the visa situation for startup entrepreneurs is broken, and something like Y Combinator is somewhat unique anyway.
But with stiff penalties for ‘fraudulent’ visa application and missrepresentation at the border – potentially as much a permanent bar from ever entering the US again – I can’t help but feel Y Combinator has a greater responsibility to the often young and slightly naive (case in point: Zak) entrepreneurs it courts to be clearer on the exact visa their partipants need.
I would go so far as to say that Y Combinator needs to clearly and formally demonstrate how participation by a foreign national is even legally possible given today’s fucked up visa situation.
Footnotes: I love Y Combinator, this isn’t a bash at Y Combinator in any way. I should also remind you, I am not a lawyer. If you are a foreign national looking to work in the US you should have an attorney anyway.