START UP VISA: Best Solution or Expensive Time-Consuming Trap?

Startups sound sexy, right?  Over the past 20 years, startup's have gained a reputation for making millionaires and billionaires out of their founders.  There's a whole lexicon created around start-ups such as founder, angel, unicorn, dragon, accelerator, disruptive technology, evangelist, etc.  Sounds much better than small business, small business owner.  But at the end of the day, they start off the same way - with a lot of hard work, sweat, 100 hour plus weeks, poring over financials late at night, funding the business yourself or with the help of friends, family, the bank, and strangers.

The start-up business class (SUBC) visa is a one of several different options for business owners to immigrate to Canada.  It was launched in 2013 by the federal Canadian government as a pilot to attract startups to Canada for the purpose of creating innovative jobs for Canadians and hopefully launching the next 1Password, Shopify, Freshbooks, Clio.  It's touted by the federal government at every tech conference as being the best fit for entrepreneurs hoping to immigrate to Canada.

The reality is that for some entrepreneurs, the SUBC visa IS their best option to immigrate to Canada, especially if they are looking for support through funding and establishing connections.  For others, it can be a POOR ALTERNATIVE.  It may sound sexy but a plain vanilla option could serve you better.

FACTS ABOUT THE START-UP BUSINESS VISA

Timeline

• Current (2022-11-25) processing timeline by the federal government: 31 months
• Prework to get to the point to submit the application to the federal government: 6 to 12+ months

Conditions you need to fulfill:

1. You (& your co-founders) have a qualifying business that has received a letter of support from a designated organization.
2. When you obtain the formal commitment of support from a designated organization, each of you (max. of 5 applicant owners) holds at least 10% of the voting rights attached to all shares of the corporation outstanding at that time.
3. When you receive your permanent residence, you provide active and ongoing management of the business from within Canada, an essential part of the operations of the business happens in Canada, and the business is incorporated in Canada.

Sounds easy, right?  Not so fast.  The first condition trips many startup founders.

ISSUE #1: Designated Organization
Let's start with 'designated organization'.  There are currently a total of 75 of them broken up into:

• 25 venture capital funds, who must agree to invest a minimum of $200k
• 8 angel investor groups, who must agree to invest a minimum of $75k
• 42 business incubators.

So you can't just go to anybody, which means that the power in this dynamic does not lie with you.

ISSUE #2: Letter of Support
Each designated organization has different criteria to participate in their Start Up Visa program before they will provide you with a letter of support.

If you need funding, a venture capital fund or an angel investor group might be the better option for you.  Just keep in mind that because you need them to agree to invest the government-mandated minimum amount of funds in your business, they can afford to play hardball with you when it comes to negotiating what they're getting in return for their investment, e.g. preferred shares/control, voting rights, larger % of the business.  They know you need them for their approval and their money under the Start Up Visa program rules.

If you don't need funding, a business incubator could be your best bet.  They can provide assistance with:

• business registration and incorporation
• legal support
• accounting
• workspace
• mentorship
• connections to investors and other key stakeholders in the startup ecosystem.

Some of them are non-profits whose main goal is to facilitate economic growth and job creation in a particular geographic area to increase the tax base and help create an ecosystem of high quality jobs; they may charge no or minimal fees as they're funded by the local, provincial, or federal government.

Others, unfortunately, can be entities that take advantage of people eager to immigrate to Canada as a startup entrepreneur and can charge as much as CAD 1,000,000 for 'assistance' to help applicants qualify under the federal Start Up Business visa program.

Many, if not all, require you to go through their 3 to 12 month start up boot camp program; they may require either equity or money in exchange.

ISSUE #3: Satisfying the federal government
The other issue is whether your designated organization and immigration team properly prepared you for the SUBC visa application.  When one of the designated entities identifies a promising applicant to support under the Start Up Business Visa program, it submits a Commitment Certificate to Immigration, Refugees and Citizenship Canada, which confirms, among other things, that the designated entity has performed a due diligence assessment of the applicant and the start-up business.

Unfortunately, there are currently hundreds of Canadian court decisions reinforcing the decision of a federal visa officer to reject a start-up application, particularly because the applicant engaged in the Start Up visa program for the primary purpose of immigration to Canada rather than for engaging in a business activity for which the commitment was intended.  Many of these rejected applicants did not obtain immigration advice from a neutral immigration lawyer or regulated Canadian immigration consultant (RCIC).

There's a new class of lawsuit where SUBC visa applicants are suing incubators for 'reeling' them in and not helping them prepare a robust application that would instill the requisite level of confidence in visa officers to demonstrate that these potential startups are real viable businesses rather than vehicles to help the applicant obtain immigration to Canada.

Designated organizations are not regulated by the federal Government of Canada.  Many of them operate under general business regulations as corporations, or under provincial regulations as non-profits.

SOLUTIONS: Do your Homework
Some entrepreneurs have been and will be best served by the Start Up Business Class visa.  For others, they would have been better off applying for immigration under the Owner/Operator federal program (which was discontinued in April 1, 2021), under a provincial business or other immigration program, or federal skilled worker class via work permits issued as an intra-company transfer, business owner, person of exceptional ability, international trade agreement, or general skilled worker.

We highly recommend you do your due diligence before beginning any participation in the SUBC visa program, including consulting with Canadian immigration lawyers or regulated Canadian immigration consultants (RCICs); immigration lawyers are governed by their provincial law society under provincial statute while RCICs are covered by the College of Immigration and Citizenship Consultants under federal statute.  Both groups are covered by 7-figure errors & omissions insurance so you know you're protected against bad advice and shoddy work product.

To learn more, contact your RCIC team at A-Canada for a business consultation re: your specific situation.

This article was written by Geeta Bhadauria, a regulated Canadian immigration consultant in good standing with the College of Immigration and Citizenship Consultants.