Lori Meadows
International students in the United States face a unique set of challenges and opportunities when it comes to launching a startup. While the prospect of starting a business in the US is exciting, visa concerns, access to capital, and navigating the complex task of exiting the business can be daunting. This introduction will explore the steps international students can take to navigate US visa options, secure funding, and successfully launch their startups, highlighting the key considerations and strategies for a strong start in a competitive market. With proper planning and perseverance, international students can turn their academic ideas into thriving businesses, contributing to the US economy and their own personal success.
| Characteristics | Values |
|---|---|
| Student visa type | F-1 |
| Student visa restrictions | Students are not allowed to own a business, earn revenues or a salary from a business they operate |
| Workarounds | Passive investor or partner in a startup, preliminary business planning |
| Work visa options | O-1, H-1B, E-2, TN, EB-1A, EB-2 NIW |
| OPT | Optional Practical Training; allows students to work for their startup for one year before or after graduation as long as it relates to their college major; can be extended by two years for STEM students |
| CPT | Curricular Practice Training; allows students to work for their startup for one year while they are still in school |
| IEP | International Entrepreneur Parole; valid for 2.5 years and can only be extended once; cannot change status or pursue a green card while on IEP |
| Other visa options | E-3 visa for Australian nationals, TN visa for Canadian and Mexican nationals |
| Other considerations | Access to capital, exiting the startup |
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Work visa options
International students on an F-1 visa can use Curricular Practice Training (CPT) or Optional Practical Training (OPT) to start their business in the US. Both allow student founders to work in their business for up to one year while they are still in school. It is important to note that OPT can also be used after graduation, whereas CPT cannot. For STEM students starting a STEM-related business, OPT can be extended by another two years post-graduation.
After OPT expires, students have 60 days to find alternative work authorisations, or they will be forced to leave the country. For international students to continue working in the US at the company they founded, a new work visa is necessary. A startup founder whose OPT or CPT degree program is ending can apply for a temporary (nonimmigrant) visa like an O-1A, H-1B, E-2, or TN visa.
The O-1 visa is for individuals with extraordinary abilities. There are many actions one can take to meet the extraordinary ability requirements, such as getting featured in the press, joining industry-relevant competitions, or getting VC funding. The H-1B visa is a great option for a postgraduate US work visa, as it is granted for an initial period of three years and can be extended for another three years. The TN visa is for Canadian and Mexican nationals, and the E-2 visa is for investors.
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F1 visa limitations
International students on an F-1 visa can create a business plan and launch their own business in the US. However, they are not permitted to run the business or engage in daily operations once it has been founded. This means that F-1 visa holders cannot conduct business activities or receive compensation/a salary. They can, however, invest in their company and receive dividends, for which they must file an annual income tax return.
F-1 visa holders can use personal savings, loans from family and friends, or venture capitalist funding to start their business. They can also hire employees, as long as all employees are legally authorized to work in the US and relevant employment laws are complied with. If they plan to hire fellow students, they must not exceed 20 hours a week of work during the semester and the work must be related to the student's field of study.
To start a business, F-1 visa holders must conduct market research and create a business plan. They must also obtain the necessary licenses and permits, and file for a Certificate of Authority from the U.S. Citizenship and Immigration Services (USCIS) if they want to hire employees who are not on an F-1 visa. Additionally, they should open a business bank account and get a business credit card.
While the F-1 visa does allow students to work in the US under certain circumstances, such as during their studies and during their post-completion Optional Practical Training (OPT) period, international students cannot work for their own businesses while on this visa. Violating the terms of an F-1 visa can result in deportation or being barred from re-entering the US.
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OPT and CPT
International students on an F-1 visa can use Curricular Practice Training (CPT) or Optional Practical Training (OPT) to start their business in the US. Both CPT and OPT allow student founders to work in their business for up to one year while they are still in school. However, there are some key differences between the two.
CPT
CPT is an alternative work-study, internship, or other type of required practical training offered by a sponsoring employer through a cooperative agreement with your college or university. It must be integral to your program of study and completed before you graduate from your program. CPT is a provision that allows international students on an F1 non-immigrant visa status to participate in internships, co-ops, projects, etc. offered by employers with a cooperative agreement with the school. This requires authorisation from a Designated School Official (DSO).
OPT
OPT can be completed before or after you graduate and allows F-1 students to work temporarily for one full year in a job related to their college major. OPT is available for both non-STEM and STEM graduates. Non-STEM graduates may avail of up to 12 months of employment authorisation, while STEM graduates may be eligible for a 24-month extension in addition to the initial 12 months. To apply for OPT, you must request a recommendation from your DSO, who will update the SEVIS and I-20 form. You must then complete Form I-765 and send it to USCIS with the required documents and fees. Once approved, you will obtain your Employment Authorisation Document (EAD) and can start your OPT program.
As long as your startup and your role within it relate to your degree program, you can work for your startup on CPT or OPT. If you are a STEM student starting a STEM-related business, you must work full-time for the business and register your company on E-verify.gov.
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Raising funding
Curricular Practical Training (CPT) and Optional Practical Training (OPT)
CPT and OPT allow international students on an F-1 visa to work in their own startup for up to one year while they are still in school. To qualify, your role and company must fit within the CPT and OPT guidelines and relate to your degree program. OPT can also be used after graduation, and for STEM students, it can be extended by another two years.
Work Visa Options
After your OPT expires, you will need to find alternative work authorization or leave the country. You can explore visa options such as the O-1A, H-1B, E-2, or TN visas. The O-1 visa is a good option for startup founders as it recognises those with extraordinary abilities. To qualify, you can strengthen your portfolio by getting featured in the press, joining industry-relevant competitions, or securing VC funding. The H-1B visa allows for a 3-month unemployment period, during which you can focus on your startup before needing to find a job in your field.
International Entrepreneur Parole (IEP) Program
The IEP is another option for startup founders who don't yet meet the O-1 requirements. However, it is a new program with long processing times and can only be valid for 2.5 years with limited extension options.
Other Visa Options
Depending on your nationality, there are other visa options available, such as the TN visa for Canadian and Mexican nationals, the E-3 visa for Australian nationals, or the EB-1A visa for individuals with extraordinary abilities.
Passive Investment
While on an F1 visa, international students are not allowed to own a business or earn revenue from it. However, they can become passive investors or partners in a startup. This option allows you to be involved in a startup without actively working, which can be beneficial if you are still working on obtaining proper work authorization.
Angel Investors and Venture Capital Firms
Despite the potential challenges, it is possible to secure funding from angel investors and venture capital firms as an international student. While some firms may be hesitant due to visa concerns, your international background can also be an asset for marketing your expansion potential and attracting foreign investors.
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Exiting the startup
International students can take several steps to launch their company in the US prior to obtaining work authorization. This includes setting up a business entity, securing investors and clients, and acquiring a workspace. However, work authorization will be required once the business is operational and the founder is working and earning a salary.
International students on an F-1 visa can use Curricular Practice Training (CPT) or Optional Practical Training (OPT) to start their business in the US. Both allow student founders to work for up to one year while still in school, and OPT can also be used after graduation. For STEM students, OPT can be extended by another two years, but the founder must work full-time for the business and register their company on E-verify.gov.
After OPT expires, students have 60 days to find alternative work authorizations or they will be forced to leave the country. Therefore, it is important to look into future visa options in advance. Options for work visas include the O-1, H-1B, E-2, TN, and the International Entrepreneur Parole (IEP) Program. The EB-1A visa is another option for international students from China and India.
Now, here is some information on exiting a startup:
Exit strategies are essential for entrepreneurs to ensure a successful and profitable departure. A good exit strategy is like knowing when to leave before things get awkward or uncomfortable. It is a plan that outlines the company's direction and supports decision-making, especially when circumstances change.
There are various exit strategies available, including:
- Mergers and acquisitions: This is a common exit strategy where two or more companies combine their operations.
- Initial Public Offering (IPO): This involves floating the startup on the stock market, allowing the public to invest and acquire shares.
- Selling to a third party: This is the most straightforward exit strategy, but it may require the help of a business broker to find a buyer, and the seller should be prepared for a potentially low valuation.
- Management and Employee Buyout (MEBO): This strategy can be effective for privatizing public companies, and it improves efficiency by motivating employees with job security. However, it can be challenging if there is no suitable manager or employee to take over, and different interests may disrupt the process.
- Selling to a family member: This option allows the founder to stay involved in the business and offer mentoring or leadership to their family member.
- Liquidation: This is the process of selling off all the startup's assets. It is often a final exit strategy when the business has run its course or due to external factors. Liquidation provides finality, speed, and simplicity but may not be lucrative for the founder and could risk burning bridges with stakeholders.
When planning an exit strategy, it is important to be patient and thorough in the due diligence process, ensuring the buyer is the right fit. It is also beneficial to have multiple offers to select the best deal for the company's future. Additionally, don't lose sight of the present; continue running the business smoothly alongside the selling process.
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Frequently asked questions
International students on an F-1 visa can use Curricular Practice Training (CPT) or Optional Practical Training (OPT) to start their business in the US. Both allow student founders to work in the business for up to one year while they are still in school.
Under the F-1 program, international students are not allowed to own a business or earn revenues/salary derived from a business they operate. However, they are permitted to become passive investors or partners in a startup.
International students can apply for the Optional Practical Training (OPT) program, which allows them to operate a business related to their field of study for one year. After OPT expires, students can look into other visa options such as the O-1, H-1B, E-2, or TN visas.
