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Donald Trump and Start-Ups

Hillary Clinton received 64 million (and counting) votes in the 2016 Presidential election and one of the driving factors behind that was the uncertainty of policies in a Trump presidency. However, as the dust settles and Americans face the inevitable, we need to start to look at exactly what Trump’s America is going to look like. This post discusses the potential changes Trump’s policies have in two major areas of start-up law: trade and immigration. Many worry that the broad, sweeping language of Trump’s campaign does not bode well for Silicon Valley.

 

Potential Trade Impact

A large portion of Trump’s campaign was spent attacking U.S. trade policies — including the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP) — and promising to slap high tariffs on (mainly Chinese) imports. The reneging of trade agreements and the imposition of high tariffs could have potentially devastating effects on Silicon Valley. The tech industry is very reliant upon cheap labor in Asia (including China, Vietnam, and Taiwan) to mass produce all components for smartphones, robots, computers, and tablets. An iPhone 7 is currently costs a minimum of $649 (plus tax) and one can only imagine how a steep tariff or forced manufacturing in the U.S. would affect the price. After all, the consumer will surely bare the cost of Trump’s policies. As CNN Money reports, manufacturing jobs pay an average of $20.17/hour—almost three times the federal minimum wage of $7.25/hour. Another issue with the promise to bring manufacturing jobs back is that those jobs are not great jobs to begin with—with manufacturers earning a little over $53,000 per year, putting them firmly in the lower middle class. Compare this to workers in China who, according to China Labor Watch, earn about $750/month with overtime.

Even though NAFTA, enacted in 1994, actually increased the amount of manufacturing jobs in the United States, Trump is correct about manufacturing being drawn away from the U.S. CNN Money reports that the U.S. has lost 5 million manufacturing jobs since 2000. However, this is a general trend that goes back to the 1960s. At that time, manufacturing jobs made up 24% of the labor market; this decreased to 19% in 1980; to 13% in 2000, and now to just 8% in 2016. However, the problem with Trump’s thesis is that technology has taken on a huge role in the manufacturing sphere — with robotic manufacturing becoming more and more the trend and the jobs associated with those robots requiring more and more education — leaving those who are not educated even less likely to find jobs.

This trend has even taken place in China where we see companies like Foxconn Technology, best known for their mass production of Samsung and Apple parts, replacing as many as 60,000 workers with robots in just one factory alone. As the Washington Post explains, “[This] is the natural dynamic by which market economies become richer as productivity improves. Improvements in agriculture productivity led to a wave of migration of farm workers to cities, where they provided the manpower for an industrial economy that eventually became so productive that we could afford to buy more health care, education, and yes, government.”

In short, Trump’s promises to limit trade are going to be more helpful as campaign rhetoric than actual policies. Manufacturing in other countries gives U.S. consumers and businesses access to low priced goods, which in turn drive the price of those goods down in the U.S. market. These policies have a chance to have a devastating impact on the American economy as a whole, but especially for Silicon Valley technology hardware firms.

 

Immigration and Visas

Another one of Trump’s main issues was immigration; more specifically, the need to limit future immigration and reverse past immigration. Silicon Valley as a whole has pushed hard to expand the use of H-1B visas beyond the 85,000 cap. The H-1B visa is a non-immigrant visa that allows U.S. companies to employ “foreign graduate level workers in specialty occupations that require theoretical or technical expertise in specialized fields such as in IT, finance, accounting, architecture, engineering, mathematics, science, medicine, etc.” To obtain an H-1B visa, an employer must offer a job to the worker and apply for a H-1B petition with the U.S. Citizenship and Immigration Services.

Silicon Valley relies heavily on immigrants — according to Bloomberg News, over 50% of U.S. tech startups valued at $1 million or more have at least one immigrant founder. Additionally, immigrants are heavily involved in the workforce in Santa Clara and San Mateo counties, which are prominent in Silicon Valley. Bloomberg reports that over two-thirds (67.3%) of the workforce in computer and mathematics fields are foreign-born, 60.9% in architecture and engineering, 48.7% in natural sciences, 41.3% in medical and health services, 41.5% in financial services, and 42.7% in other occupations. In short, immigrants make up a substantial portion of all workforce areas in Silicon Valley.

This is in addition to the so-called “startup visas,” which the Obama Administration pushed through without Congress. These visas are given to entrepreneurs who own at least 15% of a U.S. startup, and who can demonstrate the company’s growth potential, have investments from qualified U.S. investors, and provide a “significant public benefit” to the U.S. Visas are granted for two years, but the recipient can apply for an additional three years as the company proves its benefit to the American public. The recent announcement of these startup visas was well received in the tech world.

Trump has flip-flopped back and forth on whether H-1B visas are a way to bring in skilled workers or a way to bring in cheap international labor. According to the Verge, workers on H-1B workers had a median salary of $75,000 as of two years ago. In the Verge, Economist Rob Atkinson argued that the most likely outcome in a Trump White House is that “H-1B visas “will be restricted, limited, and harder-to-get” and that tech companies will “have to go through more hoops to prove there’s not an American that can get the job.” Trump’s tough talk on immigration and handing visas to skilled workers could eventually have the effect of sending jobs outside the country. If the U.S. government prevents Amazon and Microsoft from hiring the best engineers, it is only logical that they might look to set up bases in other countries (such as Canada) where their access to the world’s talent pool would not be limited.

 

Conclusion

Donald Trump’s rhetoric regarding trade and immigration in his campaign have many worried about the impact his policies will have in Silicon Valley. Silicon Valley (and the tech industry as a whole) rely heavily on cheap manufacturing abroad and imported brain power to fuel the tech industry. A fight to keep manufacturing alive in America despite its inevitable death could just wind up costing the U.S. in the form of higher priced goods. And an attack on immigration fueled by the H-1B visa could “brain drain” the U.S. and drive some of the most innovative minds (and their companies) away from the U.S.

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Can I start a company if I’m in the US on a student F-1 visa?

Hands, 1

CPT or OPT programs may allow you to launch your startup while on a student visa.

America is great.

Because of the strength of the United States’ higher learning institutions it attracts a high number of international students a year, and the number is steadily increasing. Most students come from China and India, with the percentage of Brazilian students growing in sum each year.

According to a report by the Institute of International Education the U.S. was host to around 975,000 international students in the 2014-2015 academic year, up 10% from the previous year.

More students means more ideas, and of course more money. The Department of Commerce reports that international students added around $31 billion to the U.S. economy in the 2014-15 school year. One hundred and ninety-seven thousand of those students came to study business in the last academic year. At the University of Michigan students come from 114 different countries, with around two-thirds studying at the graduate level. Michigan Law is represented by 15 countries and full-time international MBA students at Ross make up 35% of the class total.

The F-1 Visa

F-1 visas are issued to international students if they are either attending an academic program or English Language Program at a U.S. university. There are varying requirements to hold this type of visa, but the gist is that you have to be taking a full course load and you can only stay in the U.S. 60 days after the completion of your program. The difficulty comes in the ability to work as an international student. Under this type of visa status students are not allowed to work off-campus during the academic year unless they face some sort of economic hardship and are authorized by their school to do so. However, they are allowed to work on-campus subject to certain conditions. After their first academic year F-1 students can engage in three different types of employment:

  • Curricular Practical Training (CPT)
  • Optional Practical Training (OPT) (pre-completion or post-completion)
  • Science, Technology, Engineering, and Mathematics (STEM) Optional Practical Training Extension (OPT)

Under these three categories F-1 students cannot work more than 20 hours per week, unless they are on break, then they are allowed to work up to 40 hours per week.

CPT

Curricular Practical Training (CPT) is a temporary authorization for employment. This means that the job has to be directly related to your major. CPT is a way for students to take part in internships and other modes of employment, including self-employment. CPT must be required by your degree program, or at the very least you must receive a number of credits for it. This type of employment must be done before graduation. If you accumulate more than 12 months of CPT authorization then you lose the ability to apply for OPT.

OPT

Optional Practical Training (OPT) is another type of work authorization that must be related to a F-1 student’s major. Whereas CPT is required by a student’s field of study, OPT is optional and you do not need to earn any credits in relation to it. OPT is not employer specific and may be done before or after graduation. According to the U.S. Department of Homeland Security “a student on OPT may start a business and be self-employed. The student must be able to prove that he or she has the proper business licenses and is actively engaged in a business related to the student’s degree program.” Students can generally do OPT for a period of 12 months.

The OPT STEM Extension

There is an exception under OPT for STEM students. However, the exception doesn’t apply to students who are self-employed or starting their own business.

Working vs. Owning

Poet and modern rap artist Jay-Z once crooned “I’m not a business man, I’m a business man!” And so I ask you, are you the owner or the employee? Let’s face it. No one wants to work for someone else anymore. Let’s call it the curse of Zuckerberg – and it’s as if every single millennial is affected by this curse. It’s likely why you’ve endeavored to build your own business.

There is a pretty important distinction to be made between working for and owning your own business in this discussion. If you are not part of the CPT or OPT programs then it is in fact illegal to work for an LLC, C-corp, or S-corp in the United States, even if it’s your own. I mean think about it. Why would the government see any difference between an F-1 student working for a large corporation like Coca-Cola and working for a 10 student strong start-up. Well, now that I’ve said it aloud there are an array of dissimilarities between the two, but that doesn’t change the fact that it’s still illegal. Although that doesn’t mean that an F-1 student cannot create an entity or hold shares in one. In fact, the U.S. does not require any founders in a (LLC or C-corp) company to be of American citizenship. S-corps do not allow for non-US citizen founders. So it all comes down to the type of work one does with the company and at what stage. If you are coming up with a name, filing trademarks, or forming an entity then you’ve done nothing illegal. However, once the entity is formed then things get a bit trickier. If you start to do any administrative tasks or employee like functions then you enter into a very gray area. Therefore, the best option (after entity formation) is for an F-1 student to enter into the CPT or OPT programs.

To Infinity & Beyond, the H1-B Visa

After graduation and after having been in the CPT and OPT programs students might want to consider obtaining an H1-B visa.

The H1-B visa allows employers to temporarily employ foreign professionals in specialty occupations within the United States. Specialty is defined as having a specialized knowledge in a certain sector or field. The most stringent requirement for a start-up is that one must have an employer-employee relationship with the petitioning U.S. employer.

According to the U.S. Department of Homeland Security “If you own your company you may be able to demonstrate that an employer-employee relationship exists if the control of your work is exercised by others.” This can be demonstrated by having a board of directors, preferred shareholders or investors – all of which show that your company controls the terms of your employment. Some evidence which demonstrates the distinction between your ownership interest and the right to control your employment includes:

  • Term Sheets
  • Capitalization Tables
  • Stock purchase Agreements
  • Investor rights Agreements
  • Voting Agreements, and
  • Organizational documents and operating agreements

The U.S. Government only gives 65,000 H1-B visas out each fiscal year. The first 20,000

petitions filed on behalf of beneficiaries with a U.S. master’s degree or higher are exempt from the cap. If your start-up is a nonprofit then you’re also exempt.

Good luck!