This guest article was authored by Siavash Shekarian, CEO, Shekarian Law Professional Corporation.
The speed of change in all aspects of life today is faster than it has ever been.
“Start-ups” have been the main drivers of this transformation. Although there is no consensus on the exact meaning of the term, for the purposes of this article, a start-up is an innovative business that has high potential for rapid growth. Take Shopify for an example: a 16 year old Canadian company built by an immigrant that, today employs more than 7,000 people, has customers in 175 countries and as of the date of writing this article, has a market cap of $129B: 45% more than Scotiabank, Canada’s third largest bank founded 189 years ago that currently has a market cap of $88.5B.
This example, and many others like it, explain the recent global rush for implementing immigration policies capable of attracting and retaining start-ups. From Australia to Japan to Chile to Denmark to Canada, many countries are now officially competing for the likes of Shopify. Some like Chile and France offer many perks like equity-free funding, free office space and mentoring to attract entrepreneurs to their countries while others like Australia and Ireland offer no incentives and require minimum capital raised from start-ups to be eligible. While all countries have a two-pronged start-up program starting with a work visa with permanent residency conditional upon business performance indicators, Canada remains the only country that offers Permanent Residency immediately without any performance-related conditions.
This article explores the upsides, downsides, could haves and should haves of the Canadian Start-up Visa Program.
The Canadian Start-up Visa Program: The Good
There is nothing traditional about a start-up: they can be born with a spark and no experience, built by one computer, grow with very little money (= bootstrapping), and scale in no time. But high potential comes with high risk: 90% of start-ups fail (see Startup Genome report). Therefore, traditional business immigration programs like current Provincial Nominee Program (PNP) streams require business management/ownership experience, minimum net worth, minimum investment, minimum job creations, etc. Such requirements are onerous for start-up entrepreneurs. Instead, they should be rigorous yet flexible enough to accommodate the peculiar needs of these non-traditional entrepreneurs.
The Canadian Start-up Visa Program (SUVP) is reasonably flexible as it requires no minimum education, no minimum net-worth, no prior business experience, no age limit, just a modest amount of settlement funds, a simple business structure, and language proficiency of a Canadian Language Benchmark 5. However, the rigor of assessing the quality and growth potential of the applicant’s start-up is outsourced to the private sector, dubbed Designated Organizations (DO), that will attest to adequacy of the start-up by granting them a Letter of Support (LOS): the only other requirement for applying for Permanent Residency under the SUVP. Unlike traditional business programs where visa officers are in charge of assessing business merits, the SUVP leverages the market experience of DOs through the LOS regime.
At least on paper and from a policy design perspective, Canada’s SUVP is perhaps the best one among those of other countries because:
It incorporates effective tools to ensure integrity and prevent fraud.
Intention is key not success
Almost all SUVP applications get refused relying on section 89(b) of the Immigration and Refugee Protection Regulations (IRPR) because the visa officer concludes that the applicant(s) have entered into the business primarily for the purpose of getting a work permit and/or permanent residency, and not engaging with the business in a meaningful way. Section 89(b) thus is the visa officer’s tool to catch imposters: those who claim a lot with words but show nothing with action.
The precedent is also clear: it is not success that the SUVP requires, rather genuine intention proven by demonstrable actions. This intention-centric requirement provides adequate oversight while maintaining the necessary program flexibility.
Peer review
When the visa officer is in doubt about the DO’s motivations and how it has assessed the start-up business, the officer can request a peer review per section 98.09 of the IRPR. The peer review is an independent assessment: organized and conducted by the DO’s industry association of the DO’s conduct in granting LOS to the start-up based on industry standards. This tool helps visa officers to catch suspicious conduct by DOs: issuing LOS for non-genuine and/or meritless businesses to satisfy immigration requirements and for financial gain.
Inspections
A comprehensive inspection regime is put in place through sections 98.11 – 98.13 of the IRPR that allows immigration officers to examine almost everything (= employees, representatives, documents, premises) from almost every person involved in the grant of LOS (= industry association, DO, start-up business, third parties). A great toolbox for visa officers to get to the very bottom of every LOS.
It captures applicants from the entire start-up spectrum (= ideation to growth)
Canada’s SUVP regime has three tiers of DOs each having different investment requirements: Incubators, Angel Investors and Venture Capitals. Incubators, as the name suggests, often target businesses in very early stages: no revenue, still formulating business concepts, trying to validate the solution and move on to creating an MVP (= minimum viable product). As such, the SUVP regime permits incubators to support businesses with no investment requirement.
Angel Investors and Venture Capitals have $75,000 and $200,000 minimum investment requirements respectively. This means their LOS shall come with a commitment to invest such amounts in the business they have chosen to support. As such, these entities have high expectations for return on their investment and thus tend to target businesses that are in later stages of the start-up cycle: have validated their solution, have paying customers, have sound organizational structures, etc.
With this multi-tiered third-party endorsement regime, the Canadian SUVP unlike those of Australia, Ireland, New Zealand, and Italy has the ability to entice a wider range of start-ups.
It cleverly leverages Canadian Permanent Residency
The French Tech Ticket package provides each team member EUR 25,000 equity-free funding, fast track immigration processing, free office space and more. Chile offers the same type of package with approximately USD 80,000 in funding. Canada offers no incentives of this sort but remains the only country that offers a clear immediate path to permanent residency from the get-go for the entrepreneurs. Canada has always been among the most attractive destinations for settlement, it has a mature start-up ecosystem, and a very healthy and active capital market. Therefore, Canadian permanent residency is a very strong incentive for start-up entrepreneurs to choose Canada among other destinations.
The Bad
As much as the Canadian SUVP looks good in design, it has serious shortcomings in implementation.
IRCC posts that new SUVP applications will take 30+ months to be processed
Interestingly, IRCC admitted to the Canadian Bar Association in a stakeholder meeting on November 23 2021 that they have a 5-6 year inventory of SUVP applications and there is no intent to expedite these applications. This processing scenario for SUVP applications renders the program effectively futile.
Many influential entrepreneurs like Bill Gross believe that timing is the single biggest reason that determines the success of start-ups (see his TED talk -add hyperlink). Imagine a foreign start-up that has obtained a VC’s commitment for a sizable investment that will enable it to bring their solution to the market. However, such commitments are almost always conditional upon the entrepreneurs’ immigration status, as no reasonably good intentioned investor would commit financially without certainty on the immigration piece.
The start-up world is fast and furious regardless of one’s immigration status. Therefore, foreign start-up entrepreneurs are enduring double the pressure: those of running a business with a global success rate of 10%, and those of doing it under prolonged uncertainty about the future of their lives. It is thus not unexpected that these delays would make the SUVP practically unattractive for well- intentioned entrepreneurs.
The severity of this problem was recently exposed by Lexbase in October 2021 that published the results of an ATIP request to IRCC that showed a backlog of 6,000+ applications in the SUVP inventory, with zero in process.
Customer Services is virtually non-existent
IRCC is dangerously becoming a black box that stands in sharp contrast to our core value of transparency. In IRCC’s case, the customers are future Canadians, the very people who will shape the country. Therefore, transparency is a bare minimum. Effective, informed, and timely service customized for different programs is essential. Service customization is noticeably missing from the system: the needs of a student waiting for a Post-Graduation Work Permit (PGWP), a spouse counting the seconds to unite with a loved one, and a start-up entrepreneur dealing with nuanced daily obstacles are very different.
As start-up entrepreneurs are literally risking everything to join, and contribute to our Canadian economy they deserve a streamlined applicant-focused service standard tailored for their specific needs.
The Ugly
SUVP is marketed as a red carpet to Canadian Permanent Residency.
“Become a permanent resident in Canada in 6 months with no investment, no education, no experience, no commitment” followed by a big “call now” is a widespread sales technique used in many market sectors for the SUVP. Except for misleading timelines, nothing in that blurb is false. As explained, the SUVP is uniquely permissible for good reasons. But in due to lack of diligent enforcement, the program has been misused by passive individuals as a back-door to Canada. Such individuals do not even need to have high a net-worth, they just need anywhere between $50,000 – $500,000 to buy a paper start-up and get a letter of support from a DO that is willing to “do business”.
There have been cases that have found their way to the Federal Court of Canada where the DO in question was found through the peer review process to be non-compliant. Yet it is puzzling why no action was taken by IRCC to revoke the DO standing as a SUVP partner when non-compliance had been found in multiple cases.
It is alarmingly unfair that the applicants in these cases, albeit complicit, shall solely bear the loss while the enablers are permitted to continue acting as vetted players under the SUVP. It is also alarming that participation in the peer review process is not even mandatory for the DOs – another unfair practice towards SUVP applicants. Although the SUVP regime does not make the results of the peer review binding on the officer, and gives the officer discretion for substituted evaluations, IRCC needs to actively re-evaulate participated DO’s on an annual basis. As it currently stands, IRCC merely publishes a list of designated organizations on its website with hyperlinks to the websites of the DOs. More accountability on the part of IRCC in the selection of partners for SUVP in Canada is critical for program integrity and to provide a basic level of client confidence.
The Future
The Canadian SUVP like other start-up programs in other countries aims to create a balance between two objectives: risk-taking in exchange for growing the start-up ecosystem in Canada.
IRCC needs to act in sync with the pace of a start-up company’s business development trajectory, take the lead in promoting the program to minimize the potential for fraud, implement more rigorous accountability measures and proactively lay the foundation for Canada to become the destination of choice for innovative business ideas. The current state of Canada’s start-up visa program does not meet the policy objective or serve to attract face-paced start-up businesses to Canada. Rather, it has turned into another program that falls flat on its original objectives.
