How can venture capital be used for an EB-5 investment?

All EB-5 capital is in a sense, venture capital. The EB-5 laws and regulations require an at risk investment in a new commercial enterprise of the required amount of lawfully obtained capital. The investor must be (at least minimally) engaged in some way in the management of the new commercial enterprise, which must create at least 10 full time positions for qualifying U.S. workers.

For an EB-5 investor, the funds used as the investment must be PERSONAL (caps for emphasis!) funds. For an EB-5 project, a mixture of EB-5 and non-EB-5 funding can and should be used.

When it comes to EB-5 investments, the funds that are risked must be traced to the EB-5 applicant. In other words, an EB-5 applicant may not use funds from other sources to meet the minimum investment requirements. Provided that venture capital, in the strictest sense of the phrase, would not technically fall within the category of permitted investments, there is no list of documents that are needed to source back the funds. Nonetheless, for the record, note the following evidence that is typically needed to source back other means of investment capital: 1) Earned income: The investor should present proof of their salary, employment certificates, affidavits from past employers, income tax records, and bank statements showing deposits over time. USCIS prefers objective evidence, such as bank statements, over statements from friends or relatives. If an employer writes a letter certifying that the investor works there, corroborate the letter with bank statements showing regular monthly deposits of the investor's salary. 2) Investment proceeds: The investor should show: (a) that the money used to make the initial investment was obtained lawfully; (b) that the investor owned the investment; and (c) receipt of the capital from the investment proceeds. Bank statements and documents of the sale of the investment are key here. 3) Sale of property: The investor should show the lawful source of the money used to buy the property. The investor should include the purchase contract for the property, the ownership registration or deed, and tax receipts for property taxes paid on the property. Document the property sale and any taxes paid on the sale. If a mortgage has to be paid off as part of the property sale, include documentation of that payoff in the source of funds package. 4) Property loans: The investor should include documentation of the loan or mortgage contract, the notation of the lien on the ownership documents, evidence of the value of the property compared to the value of the loan, and any relevant bank records. The USCIS may question a loan document that does not mention repayment terms, loan duration, or the property used as collateral for the loan. The investor must be personally liable to repay the loan. 5) Ownership in a company: The investor should show the lawful source of the money used to buy an ownership interest in the company. 6) Company loans: The investor must show that the company has enough assets to make the loan to the investor. If the investor is a shareholder, include financial audit reports, bank statements, etc. The investor should submit a copy of the shareholder meeting minutes documenting and approving the loan. 7) Gifts: The donor must show how they lawfully obtained the money to give the money to the investor. For example, if a parent earned money over years, the documentation described above concerning earned income would apply here to show that the parent lawfully earned the money to give it to his or her child to make an EB-5 investment.

I cannot see a realistic situation where venture capital would fund an EB-5 investment petition. Not likely, but possible under the following scenarios. To be eligible, the money invested in a new enterprise by a foreign national must come from a traceable source. VC capital could fund an EB-5 petition where the foreign national petitioner, who happens to also fit the definition of an individual venture capitalist, chooses to use his or her own funds from earnings, sale of property held over time, gifts, legal judgments, or inheritance. If the EB-5 petition is funded from a third party, like a venture capitalist, the money cannot be secured by the new enterprise and cannot be a gift derived from a loan, other than a gift from an immediate family member. If a venture capitalist gave the foreign national the money secured by the investor's own separate property or unsecured on the foreign national's name, the task would be to trace how the venture capitalist obtained the money. It is difficult to see how the venture capitalist would derive benefit. The foreign national will obtain the security offered for the investment and the benefits from that security. The venture capitalist would not be investing in the new enterprise. I can only think of one possible situation that is rather far-fetched. If a primary business needed a product or service that was not readily available, it is conceivable that a venture capitalist might gift money to fund an EB-5 petition if the new enterprise, when established and doing business, supplied the needed product or service to the primary business, and the venture capitalist thus derived benefit from the EB-5 gift from the subsequent sales by the primary business.

It is hard but not impossible to use VC money mainly you have to show that the money invested by the foreign national is directly connected to the jobs being created.

Certainly, venture capital (VC) can be used for an EB-5 investment. You are likely to encounter two models: the loan-based model or the debt financing model. Either model is used primarily in the technology or real estate industry, typically in any of the three financing stages of these two industries: capital for the early stage, capital for the expansion stage, and capital for the growth stage. There are various means of dealing with venture capital financing for EB-5 purposes. Please be aware that the most important thing is documentation because most VC investments are either debt or equity investments. One of the cardinal rules of EB-5 is that investors are required to document that the source(s) of their funds is lawful and VC financing is no exception. Also, there are restrictions on the origin of all funds, including VC funding, so be ready to comply with them. There is more information and for better guidance on this question, consult an EB-5 attorney before you proceed.

Any funds used for an application by an investor seeking a green card must show "a lawful source." If the project has other funding not tied to the green card application, then USCIS is usually not concerned as to its source, VC or otherwise.