EuropePolicy Updates

UK’s New Founder Innovator Visa Program is “Not Scalable” And Will See “Serious Bottlenecks”

Earlier this month, the UK Home Office announced a wide range of immigration policy changes, which included, among other policy initiatives, the introduction of the new Innovator Founder Visa (IFV). The new category will replace the Start-Up and Innovator Visas with a single route to UK residency for entrepreneurs.

Since the sudden closure of the Investor Visa category in March of last year, the only investment-based visa categories available have been the Startup and Innovator visas. As outlined in our Q3 Private Briefing last year, however, the endorsing body model applied to the Startup and Innovator visas gave rise to a number of unintended consequences:

Moreover, conditions for moral hazard and conflicts of interest are rife within the Innovator program because of what insiders say are inadequate controls of and rules for the large number of endorsing bodies, many of which are financial advisories. 

Endorsing bodies are not paid for evaluating and endorsing business plans directly and, so, in cases where these are private financial advisories rather than universities, they must find other ways of making this activity economically worthwhile. The way they often do this, says one industry participant with intimate knowledge of the matter, is often to make endorsement conditional on the Innovator applicants’ investing in particular companies, in which the endorsement body itself has a direct or indirect interest (often collecting 5% once the investment is made). 

In the words of our source, “there’s no money in doing things the proper way. The whole system is wrong. Innovator applicants go to endorsing bodies to ask ‘please, can you endorse my business’, and the endorsing bodies, in turn, respond with ‘what’s in it for me?’”

The government, reportedly, has realized the extent to which its rules have brought about undesirable, unintended consequences and are planning a comprehensive reform of the Innovator category, which will place much tougher requirements on the endorsing bodies. EBs will be paid for endorsements and heavily restricted in terms of where they can direct investment. “They’ve been told they can charge X for checking an extensive list of criteria and KPIs about the business,” says our source. “And X isn’t a very large number. So, it’s a lot of work for not a lot of money. There’s no margin in it, and most of the private sector firms currently acting as EBs are unlikely to wish to re-qualify as such.”

For the Founder Innovator visa, the Home Office will henceforth require that new applicants obtain an endorsement from one of just three endorsing bodies, down from the 60-odd such organizations today.

“We are introducing reformed endorsing body arrangements to support the operation of the route, which will deliver a simpler, easier-to-use system for applicants,” said the Home Office in an explanatory statement accompanying the news. “It is essential that the UK continues [sic] to attract entrepreneurial talent from overseas to help foster the development of new innovative businesses in the UK.”

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How does the Innovator Founder visa differ from the Startup and Innovator visas?

No minimum investment amount
The most salient difference is that the IFV will not have the £50,000 minimum investment requirement that now applies for the Innovator visa, a move the UK hopes will make for a “more flexible provision for those with a genuine proposal for an innovative business and sufficient funds to deliver it.”

This change particularly benefits businesses that don’t need a large amount of capital to begin operations. However, if the business idea requires a significant cash injection, the new Endorsing bodies may still require that the applicant have the necessary funds available to start and run the business, typically for at least the next 12 months.

Contact point requirement eased
The new rules mandate a minimum of only two contact points between Innovator applicants and their Endorsing bodies, as opposed to the previous checkpoints at 6, 12, and 24 months. The aim of this change is to allow more flexibility regarding when new applicants need to meet with their Endorsing body. Different industries and businesses have varying timelines for business development, so moving away from set checkpoints will help alleviate pressure resulting from rigid timescales.

The UK’s Minister of State for Immigration, Robert Jenrick, explained how the changes would simplify the innovative immigration framework while also widening the pool for prospective entrants, as “applicants who would not meet the existing £50,000 requirement will be able to obtain permission for three years from the outset, rather than the one year granted to Start-up route applicants under existing arrangements.”

Secondary employment permitted
Innovator Founders can now take up secondary employment, as long as the role is at a skill level of no less than RQF level 3, roughly equivalent to a high school diploma. This change reflects the reality of genuine entrepreneurs who often work for other businesses while starting a new venture. This would allow founders to make a living until their venture matures to become the applicant’s main source of income.

The Innovator Founder Visa will also “relax existing restrictions on Innovator migrants engaging in employment outside the running of their business” as long as they engage in employment that is at least at RQF Skill Level 3.

“With only three endorsing bodies being appointed by the Home Office, this whole visa category is going to see serious bottlenecks,” commented Eric Major, CEO of Latitude Residency & Citizenship, in reaction to the news on social media. His firm was among many that successfully promoted the UK Investor Visa for many years before it closed. Since then, the firm has also offered tailored services for the Innovator visa. Major feels less confident about the product-market fit of the new Innovator Founder category:

“I guess the Home Office never intended this category to have the same scale as the old Entrepreneur category, given the political pressures about net migration. In fact, we don’t anticipate any truly scalable offerings in the future here in the UK, either under Innovator Founder or under any future ‘Business Angel’ visa. From that perspective, the UK isn’t very open for business.”