On Tuesday we heard EB-5 stakeholders eloquently express grievances to the CIS Ombudsman. Yesterday I imagined a USCIS representative taking his complaints, in lieu of real-life forum, to St. Thomas More. Today my imagination takes up another voice that tends to be underrepresented — that of the US business person trying to use EB-5. Let’s designate Mr. Jarndyce as patron saint of the red-tape oppressed, and let our hypothetical business person appeal to him.
St. Jarndyce hear the prayer of the afflicted, this honest American businessman struggling with a funding program that looks great but seems to get more complicated and cumbersome the more I get involved in it.
Let me get one thing straight: I do business. I’m passionate about my industry, and have put my own life and resources into developing my business and creating new opportunities, but here’s the bottom line: I do projects when the value exceeds the cost of capital. That’s it. I don’t exist as a goose to lay golden eggs for agents and consultants and Tulkinghorns, and I sure as hell am not in the business of selling green cards.
EB-5 looks attractive to me because the current capital crunch encourages me to consider alternative financing for my business opportunities, and because the immigration benefits offered by USCIS effectively lower the return that the EB-5 investors would require from me, thus promising a relatively low-cost piece for the capital stack to fund my great new project. One would think that I could contract some professionals to do the paperwork and deal with the foreign investors and the government, collect and present the kind of detail about my business that’s required by industry standards for loan underwriting or a private equity raise, and then I can go ahead and do my business and break even in the end with some profit for the shareholders. Meanwhile investors get green cards, the economy gets money, and Americans get jobs. What a deal.
But what happens in real life? I hired professionals at costs that made my CFO faint to prepare the paperwork for USCIS, and found out why they’re so expensive when USCIS responded a year later with a Request for Evidence that would – if we fully responded to every point – require about a thousand pages of exhibits. I don’t know if those people over at USCIS take me for a fraud or for The Bill and Melinda Gates Foundation, but anyway they ask me for the kind of minute economic analysis that would presumably be water-tight but at a cost of several months and a tens of thousands of dollars, tell me that the market study I commissioned from a preeminent consultant in my industry doesn’t match up to their mysterious understanding of reasonableness and verifiable detail, inform me that my real quotes and bids are insufficient support for cost claims, request records that they don’t realize would fill file boxes, criticize me for not being “average” as compared to some median for US firms (as if I have to be 37.2 years old just cause that’s the median age for Americans), inform me that the prospective jobs that won my project all those support letters copied in my application are not actually attributable to me thanks to some proprietary USCIS theory of job creation, and so on. I don’t know who’s laughing here, unless it’s the crowd of consultants I have to pay to figure all this out, or the guy who’ll be able to sell me a replacement Xerox machine by the time this is over. I consider whether my firm should keep pursuing this path, as the unforeseen complexity of the paperwork results in mounting costs and as potential projects rise and change and fade and die with the pace of the market while USCIS reviews my documents with the pace of Baltoro Glacier.
I decide to persevere, since the firm has already sunk over a hundred thousand in pursing the EB-5 option, and I finally get my prized approval letter, only to realize that the fun fair is just getting started. Now that I finally got approved by convincing the government that I am really a business person ready to sponsor real investment in real projects, agents get their hands on my business and parade it before foreign investors telling them the opposite – that this is not real investment in a real business with realistic risk and return, but rather some kind of government-produced vending machine where you put in money and eventually “poof!” out comes that same money plus a green card, risk-free and guaranteed. Not only do agents make investors believe such nonsense but they ask me for fees and cuts and promises to match some other rogue – not characteristic of US businessmen – who can afford to pay huge fees and make big promises because he doesn’t need to conserve money for a real business venture but only for his disappearance to Tahiti. In my application process with USCIS, I found my detailed and sophisticated proposal at the back of the line behind proposals that were small, bland, and relatively easy to digest. When it came to finding investors, I found my genuine offering at the back of the line behind any business of any quality who would pay the agents and promise the investors more than I considered realistically or ethically possible for me.
Was it all worthwhile? I can only say that my project better have fantastic cash flows to justify the investment in time and money that I had to put in to get that EB-5 piece into the capital stack. Not to mention the risk I accept entering a minefield of securities laws and having not only the money but also the families of foreign investors depending on the successful, timely, and predictable progress of my project. Before recommending this to someone else, I would want to see more guidelines on the table to give people like me a realistic sense of what they’re getting into, how much it will cost, and how to do it right. And when I say “do it right,” I’m not talking about standards for the perfectly accurate economic report, the ironclad business plan, the unquestionable verifiable evidence, the fool-proof offering documents, the guaranteed business opportunity – because such things simply do not exist in the real world, and if they did who could afford them. I’m talking about “good enough” – achieving a reasonable standard – something less than perfect but possible and reasonable. I’m here to do good business, and that doesn’t include paying more to get capital than I could possibly earn by deploying that capital. It doesn’t mean accepting risk and making concessions that can’t be balanced by potential benefits. It doesn’t mean raising funds that can’t be made available within the lifetime of the project that needs them. I’m here, champing at the bit to raise money and put it all into profitable job-creating activities because those activities are my business. USCIS defeats its mandate if its policies and lack thereof force me to invest in cumbersome processes and paperwork, diverting resources that I’d rather put into new business activities and job creation. Likewise, the market undermines itself by insisting on rosy promises that favor the desperate. Come on everyone. Let’s get real here. Otherwise people like me, honest American business people who are the engine for this system, are going to do the math and lose interest in EB-5.
This speaker is not real, and his experience is not characteristic. But I have evidence that everything that happened to him has happened to at least one real person in the past year.
Being in the paperwork profession myself, I did not have my hypothetical business person dwell on the headaches he encountered with the service providers who prepared his documents. However, this is an important factor to consider, and perhaps my kind are more guilty of creating problems than the government and the agents put together. I recommend an excellent article on “Lessons I Learned from My First EB-5 Capital Raise” by Ron Wilkinson, a developer with Vantage Pointe Investments.
EB-5 Updates 