Dear Sophie: How can early-stage startups improve their chances of getting H-1Bs?

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Dear Sophie,

We have a stealth early-stage biotech startup.

Do we qualify to petition a co-founder on STEM OPT for an H-1B in the lottery? Is it worth it or are there better alternatives?

— Budding Biotech

Dear Budding,

It’s absolutely possible for an early-stage biotech (or tech) startup in stealth mode to successfully petition a founder or founding engineer for an H-1B in the lottery or even an H-1B transfer. Here’s how, starting with some background on how the H-1B lottery works for startups.

In recent years, U.S. Citizenship and Immigration Services (USCIS) has leveled the playing field for startups entering an employee or prospective employee in the H-1B lottery by creating an electronic lottery registration system. Because the demand for H-1B visas far outstrips the annual supply of 85,000 (20,000 of which are reserved for individuals with a master’s or higher degree), USCIS uses the random lottery process to select companies that are eligible to petition for specific beneficiaries.

Before 2020, companies had to submit to USCIS a completed, paper-based H-1B petition package for every employee and prospective employee they wanted to enter in the annual lottery. USCIS adjudicated the H-1B applications that were picked in the lottery and literally mailed the unselected paper applications back to the lawyers. The time, energy and legal costs for submitting an H-1B application made participating in the lottery under this system quite onerous, particularly for startups, because you had to commit to paying for a full H-1B before you knew if your candidate had a chance.

That all changed in 2020, when USCIS instituted an electronic registration process for the lottery. Now, sponsoring companies only need to pay a $10 fee to register an employee or prospective employee in the lottery, which significantly reduced the barrier to entry for all companies, including startups. That means that you can enter as many candidates you would like to sponsor in good faith into the lottery.

If people quit after they are selected and before you file, you don’t have to follow through with a full H-1B. If your budget doesn’t allow for you to currently sponsor your entire international remote team but you still want to give everybody a chance, you can do that.

Can early-stage biotech startups get H-1Bs?

Yes, most definitely! The biggest issues facing early-stage startups when getting an H-1B visa for their founder or co-founders are:

• Structuring the startup so that it has a true employer-employee relationship between the company and the founder beneficiary, including the ability to control and potentially have voting rights in the company.
• Demonstrating to USCIS that your startup has the ability to pay the prevailing wage to your co-founder.
• Ensuring that the founder’s job qualifies for an H-1B: easy for CTOs, a little more complicated for CEOs but can work depending on the individual’s background.

One of the key requirements for the H-1B is that your startup and your co-founder must have an employer-employee relationship. That means someone at your startup, such as another co-founder, must:

• Supervise that H-1B co-founder.
• Hold that co-founder accountable for poor job performance.
• Have the ability to fire that co-founder.

Demonstrating that your startup can pay the prevailing wage to the H-1B candidate can be a challenge. The “prevailing wage” is like the minimum wage for H-1B candidates, which is based on the position and location of the position. You should be aware that this is often higher than the market rate for founders, who under other circumstances would be willing to accept a lower salary because of their equity. If the founder plans to work remotely because you have a distributed team, that could lead to a lower prevailing wage requirement.

How much funding do you need to qualify? You have to prove to USCIS that the company has the ability to pay the H-1B worker upon approval for the duration of the petition, usually three years at first. There is no minimum requirement, so some level of pre-seed funding is a good start.

It doesn’t matter if it’s through a SAFE note or a priced round, or if the funds come from friends and family, a government grant, an accelerator or VCs. You should have the money in your bank account before you submit the H-1B petition, which in the lottery scenario, would probably be in Q2 2023.

To further ensure employer-employee relationship, depending on the number of founders and who is on the cap table, your immigration attorney can advise you if you need to work with a corporate attorney to draft certain bylaws. All of these things depend on the specific details of your startup and H-1B candidate co-founder, so talk to experienced attorneys to guide you step-by-step!

Is applying for an H-1B for a co-founder worth it?

It doesn’t hurt to enter your co-founder in the H-1B lottery in March, particularly since it will only cost you $10 and the time it takes to set up a USCIS account. However, because it’s relatively easy to register individuals for the H-1B lottery, more and more individuals are registered each year, making it less and less likely to be selected in the lottery. The chances of being selected in the lottery dropped to about 23% in 2022 from about 32% in 2019.

Those odds seem low — are there alternatives?

Especially with the timing of the H-1B lottery (the next earliest start date will be in October 2023), I often recommend that young startups invest their limited time, energy and funds into applying for an O-1A extraordinary ability visa for their founders.

While a startup must still demonstrate that it has an employer-employee relationship with their founder for an O-1A, this option does not have a wage requirement nor limits on how much equity in the startup a co-founder can hold like the H-1B. There’s also no limit on the number of O-1As that USCIS can issue each year, unlike the H-1B.

Your co-founder may have to invest time and energy into building up their qualifications for the O-1A. To qualify for an O-1A, your co-founder must meet at least three of these criteria, but for a strong case, I often recommend meeting at least four:

• Earning nationally or internationally recognized awards, which can include receiving funding for your startup and being accepted into a highly competitive accelerator or incubator program with stringent selection requirements.
• Being invited to join a group or association that demands outstanding achievements.
• Featured in professional or major trade publications or major media (such as TechCrunch!).
• Significant contributions to your field, such as your co-founder’s work or achievements that have generated widespread attention in the media or have been used by others through licensing patents or contracts, or are advancing your field.
• Judging the work of others in your field in hackathons or pitch competitions other events in your field (Startup Battlefield, anyone?).
• Written articles that have been published in major media or professional publications.
• Are a critical or essential employee for a company with a distinguished reputation.
• Commanding higher than average pay.

Many founders, even of early-stage startups, get O-1As all the time. Depending on your co-founder’s STEM OPT expiration date, you might want to pursue this immediately in parallel with the H-1B lottery next year.

You’ve got this!

— Sophie

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