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How did the UK beat the US to a Startup Visa? And how do you get one?

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David Caldwell is a co-Founder of YourJobDone.com, a mobile marketplace for getting local jobs done fast. Here he shares some of his first-hand visa experiences and thoughts for VCs, policy makers, and non-EU founders thinking about the UK.

The British Government has beaten the US to a startup visa – but what this means in practical terms for founders and investors hasn’t really been explained. I am a co-founder of London-based YourJobDone.com, and am Australian. I have seen intended visa options shut-down after considerable investment, been detained twice by the UK Border Authority, experienced interrogations and searches of many hours, had my passport confiscated for a week, witnessed and contributed to the new visas and am one of the earliest recipients of these new visas. I know about visas and border protection in practice.

I’ll give you some background, explain the requirements of the new visas, and illustrate why supportive and relevant personal networks are critical to making it work.

Why should anyone migrate to the UK to start a business?

Many startups are a product of chance alignment in time, space and inspiration. Ambitious, inspired, interesting people often travel, seeking opportunity, new experiences and perspective. It is hardly surprising that while people are abroad they meld others’ thoughts with their own, develop new ideas and develop new partnerships. And if you’re inspired to do something a bit edgy, where it is hard to find people with both the skills and motivation, you don’t want to be contained necessarily to collaborating only with people holding the same passport as you.

There are thousands of examples in the tech world of multinational teams giving rise to amazing new things- one of my favourites is Google Maps, founded in Sydney by two Danes and two Australians. Those amazing new things do wonders for the economy, providing employment and increasing the efficiency of the economy with more competitive, better ways of doing things.

Some meet while studying, others in a workplace. I met my cofounder, Shane Swallow, in a flatshare in East London in 2009. At that time I was working as an operations consultant in a London engineering firm, he was managing a Chinese language training service he’d founded two years earlier.

There are many opportunities in the UK market that are particular to the UK. We both saw huge potential for mobile peer-to-peer coordination of small jobs. Unlike my home town of Sydney, London is perfectly suited to it. As a consequence of post-war housing policy, right throughout London’s population of 8 million, there is the interspersion of people with cash and no time, and people with time who need cash. People living within close proximity have mutually fulfilable needs, they just haven’t a platform to be efficiently connected with one another to get little jobs done. We had a solution for that.

Visa changes over the last 2 years

When I set out the UK visa system was straight forward and stable, and I was eligible for a visa. Things started to change pretty rapidly though, with the requirements for the “highly skilled” Tier 1 visa increased to a Masters’ degree, and requirements for Tier 2 “skills shortage” made impossible for a startup. On short notice I became ineligible to change visas and remain in London, after having invested almost a year in YourJobDone.

Around the time of the UK General Election, after much lobbying from the business sector, the new Government reviewed how a further reduction of skilled immigration would impact on the economy. Amid this was press coverage of my own predicament.

At the launch of “Tech City East”, Prime Minister Cameron announced that visa rules would be changed to “put out the red carpet” for entrepreneurs.

The practical manifestation of this came with amazing speed in April this year when UK Visa Rule changes effectively created two new visas:

1. Prospective Entrepreneur (Business Visitor)

A 6 month visa for proving up a startup and conducting discussions with investors with a view to raising £50,000 (USD80,500) or more. This visa precludes any form of employment in the UK, and is not able to be transitioned to any other visa type unless finance is raised.
The biggest challenge I found was the requirement for an invitation to discussions from a UK Financial Services Authority (FSA) registered VC fund. I’ll return to this below.

2. Tier 1 Entrepreneur

A 3 year visa for a founder who has a funding commitment of £50,000 or more from one or more of: an FSA registered VC, a Government Department, or a UKTI recognised seed funding competition (SeedCamp or Springboard). Alternatively, left over from the old visa rules, if you have £200,000 (USD322,000) cash at your personal disposal you can also qualify.

The idea is that you use the Prospective Entrepreneur visa to pitch your startup, and then if successful in raising a seed round you transition to a tier 1 Entrepreneur visa.

Key challenges for founders and investors

There are a few challenges here. The main one is going from arrival in the UK to funded within 6 months, in order to make the transition to the Tier 1 visa. This is not much time to establish face-to-face rapport, demonstrate product-market fit and raise capital. If the deadline is missed it’s all over, there is no follow-on visa. This leaves a considerable risk for international founders who could, after committing much cash and time, narrowly miss the target and get the boot before closing a deal.

The other major challenges are a consequence of the characterisation of an eligible investor. Like the US Startup Visa Bill (Which requires a sponsoring investor to be based in the US and have invested USD10m+ in the last 2 years), The UK startup visa also requires support from big-hitting VCs, registered with the UK Financial Services Authority (FSA). Alternative eligible investors are the two government recognised startup competitions or a Government department.

At present, the highly constrained extent of approved competitions investing over £50,000, and the unlikely case of a Government department directly investing in start-ups, means that for most start-ups an FSA registered VC would have to be at least part, if not the whole, source of capital to obtain a Tier 1 visa during the 6 month Prospective Entrepreneur term.

The impact of this for the founder is two-fold: firstly it means that the entrepreneur is seeking an initial invitation from an FSA registered VC, who may in fact be a bad fit compared to a domain-experienced angel (or syndicate). Secondly it means that the founder has to get straight to a VC round within 6 months, which is quite unusual for a pre-revenue company (significantly, the startup is not allowed to sell anything during those 6 months, and the entrepreneur is not allowed to earn income in the UK). My experience so far is with only the first part of the challenge.

VCs are busy people, and even if you know a few in your target market, getting a hard-copy, signed letter-head invitation to discussions in the UK is not easy. Particularly if you are more realistically positioned for £50k-£500k angel discussions, as YourJobDone is, most VCs will not happily entertain the idea of writing a formal letter to support someone who is seeking to put their case for a first round.

My requests to the FSA registered VCs I knew personally were turned-down (albeit after serious consideration) for various reasons, including internal governance issues and unknown compliance risks associated with issuing a formal invitation to discussions. In truth this probably translates to: they did not care enough about the possibility of investing to warrant the effort, or they were not willing to do me a favour in the long-shot that there was an opportunity for them.

At this point I was starting to think it was all over, unable to return to London to push our beta, meet people we could collaborate with, or show our wares. A looming great loss to me, and a lost opportunity for UK innovation.

This is where personal relationships became central. While in the TechHub coworking space in East London in December 2010 I had met many interesting people doing similar things. Two people came to my aid – Teamly.com founder Scott Alison and TechHub co-founder Elizabeth Varley.

They reached out to the VCs they knew who had portfolios covering similar markets and technology. Though I was declined by several more, one good man, recognising both the possibility of the opportunity, and gravity of the situation for me, was prepared to go to the effort of making a formal invitation to discuss the possibility of investment. Being a non-Briton himself, he had a first-hand appreciation for how problematic UK visas can be. I am extremely grateful to that VC, and to Scott and Elizabeth for their introductions.

A few founders, who raise capital through SpringBoard or SeedCamp, should find meeting the criteria fairly straight-forward. The challenge for most non-EU entrepreneurs aspiring to innovate in the UK is: who do you know that believes in what you’re doing and who can help you reach out to the people you need to support you?

Over time the UK Government may adjust some of the criteria to make it more practical for the kinds of startups you read about in TechCrunch. Though there aren’t any impending changes, some things that are deserving of consideration include:

1. recognising domain angel investors as legitimate investors,

2. allowing pre-VC startups (i.e. with Prospective Entreprenuer founders) to take revenue,

3. requiring at-least-one rather than all investors in a syndicate up to £50,000 to meet the investor eligibility criteria, and

4. allowing extension of the Prospective visa to 12-months in-country if further invitations to discussion are received.

The UK has moved fast to implement these visas- compare it with the US- and some issues will need to be ironed out with the benefit of experience.

Thoughts for non-EU aspiring UK innovators:

For the time being, if you’re a non-EU founder anything like me with UK aspirations, understand that your friends in the global startup community are critical to getting the right references. There’s no better place to cultivate those relationships than in a tech-startp coworking space like TechHub.

If you do meet VCs who are interested in what you’re doing, be prepared to help them with the contents of the letter. Provide referenced statements that satisfy the requirements of the immigration rules, so that the VC just has to add the finishing touches.

Thoughts for UK FSA registered VCs:

You are now the arbiters of who can remain in or come to the UK to start cool new companies. The requirements of the Prospective Entrepreneur are not onerous. If for no other reason than to avoid shutting-out highly motivated international innovators, please be sensitive to the constraints and willing to deal with the friction of a formal invitation even if it’s a long shot.

Three years ago, almost any English-speaking international graduate on a decent salary could come to London, get a startup going in parallel to a source of income, meet you casually, warm up connections etc. Now a non-EU founder planning to serve the UK market must be invited by you, is not allowed to take income in the UK, and their startup is not allowed to sell services or goods in the UK.

Also be sure to provide feedback to the UK Government. If you think for instance that domain-experienced angels might be better suited arbiters of credibility of early pre-revenue companies, make it known.

As far as I’m concerned, we have a startup to scale. I’m hoping I’ll meet the requirements to transition visas as a matter of course. There are going to be a lot of interesting challenges, and getting money from the right source is one more. I’ll let you know how it works out.

Further reading on the visa requirements:
Prospective Entrepreneur

Tier 1 Entrepreneur