UK Innovator Founder Visa: A Game-Changer for Foreign Entrepreneurs
On 9 March 2023, the Home Office published its Spring Statement of Changes in Immigration Rules. The statement contained the announcement that the government will be making changes to the Innovator visa category which will make the Start-up route unnecessary and obsolete. Consequently, they will be closing this category to new applicants from 13 April 2023 onwards and changing several important criteria for the old Innovator Visa route, and rebranding it as the Innovator Founder Visa. This article will provide an overview of the changes, will identify why these changes were deemed necessary, and will highlight why we believe that these changes represent a change in the right direction for both the Home Office and foreign entrepreneurs looking to start an innovative new business in the UK.
Key Changes With Innovator Founder Visa
The Innovator Founder visa combines many of the best features of the two previous visa schemes:
- No Minimum Investment Requirement - Founders will no longer be required to invest (or have invested) at least £50k in the business as was the case for the Innovator visa. This is one reason why there is no longer a need for the Start-up route which had no minimum investment funds requirement. This will offer greater flexibility to applicants. However, some applicants will need to show that they have sufficient funds to establish their business as part of the requirement to show that the business plan is viable. If the business idea is one which requires significant investment, then the Endorsing Body may wish to see evidence of how the applicant proposes to fund this.
- Secondary Employment is Permitted - Secondary employment will be allowed while developing the startup. Under the Innovator route, applicants were excluded from working for any other business other than the business that they have established, though this was permitted for Start-up migrants. The Innovator Founder route is much more flexible in that it allows employment outside of the applicant’s business. Innovator Founders can take up secondary employment provided that the employed role is at least RQF Level 3 (equivalent to A-levels). This is, of course, another reason why the Start-up route is no longer required. Study is also permitted in certain circumstances.
These changes would universally be deemed positive for foreign entrepreneurs looking to start a new business in the UK. However, the biggest complaints from foreign entrepreneurs in recent years in connection with start-up and innovator visas have been in relation to the endorsing body system.
History of the Endorsing Body System
The Start-Up and Innovator routes have been available to foreign entrepreneurs who wish to establish a new business in the UK since March 2019. These two visas replaced the Tier 1 (Entrepreneur) and Graduate (Entrepreneur) visas which had preceded them and were designed to address the criticisms levied at the previous entrepreneur visas. There were several important criticisms made of the older visas that these new visas attempted to address, chief of which was related to what was called the "genuine entrepreneur" test.
In 2013, the "genuine entrepreneur" test was introduced as a means to help the Home Office screen out low-quality and potentially fraudulent applications. Entry Clearance Officers (ECO's) were given the responsibility to assess "the viability and credibility of (the applicants) business plan and market research of (their) chosen business sector". The subjective nature of this assessment caused widespread concern, especially given that the immigration officers responsible for these decisions would almost invariably not be properly qualified to make an accurate assessment of the credibility of the applicant's proposed business and the viability of their specific plans.
Consequently, the Start-Up and Innovator routes had new requirements, with applicants having to show that:
- they have an ‘innovative, viable and scalable’ business idea; and
- their new business idea has been endorsed by a Home Office approved endorsing body.
The endorsement process is a critical part of the visa application process. Endorsement is required to prove that the business idea is innovative, scalable, and has the potential to contribute to the UK economy. The endorsing body is responsible for assessing the business idea, the founding team, and the potential for success. The endorsement letter is then used to apply for the visa.
It makes perfect sense to have business ideas assessed by endorsing bodies with entrepreneurial experience, commercial insight, and technical knowledge rather than by Entry Clearance Officers who are ill-prepared to make a sound judgment about the viability or otherwise of a particular enterprise. However, this change to a system of endorsing bodies brought about a fresh set of problems.
Unforeseen Problems With Endorsing Body System
Under this new endorsing body system, entrepreneurs looking to apply for start-up and innovator visas had to get a letter of endorsement from one of more than 50 private UK endorsing bodies, or one of a few dozen UK universities. The idea was that many endorsing bodies collectively offering a wide range of sector-specific and region-specific expertise would be the best way to support applicants in this visa category and improve outcomes for UK PLC and the Home Office. However, Home Office officials have seen over the course of the last four years that the endorsement system as presently constituted does not work well either for the entrepreneurs or for the Home Office.
- Bad for Entrepreneurs - The old way endorsement was arranged didn't work well for entrepreneurs for whom endorsement was typically only granted after they signed up for an expensive programme of business support (up to £10K per year) or after relinquishing equity in the business to the endorsing body (10% - 20% of the company in many instances). Meanwhile, young entrepreneurs who were able to be endorsed as a graduate or alumni of one of the Universities didn't typically have to pay for ongoing business support but generally received very limited support from academic staff with limited entrepreneurial experience.
- Bad for Home Office - The fact that there were so many different endorsing bodies made it incredibly difficult for the Home Office to maintain a uniform interpretation of the criteria for a project to qualify for the start-up or innovator visa (i.e. innovative, viable, and scalable). This disparity between the Home Office's interpretation of the criteria and the interpretation of many of the endorsing bodies culminated in an explosion of refusals in 2022 for applicants that had been endorsed by one of the endorsing bodies but who were subsequently refused by the Home Office at the visa stage. The refusal rate for the innovator visa, for example, increased from 5% in Q2 of 2021 to 44% in Q2 of 2022. This refusal rate subsequently fell slightly as many endorsing bodies adopted an interpretation of the visa criteria that was more in line with Home Office expectations, but the refusal rate for both start-up and innovator visas remains high.
Since early 2022, the Home Office has been looking at alternatives to the existing endorsing body system and these were announced alongside the announcement that the Start-Up and Innovator visa routes would be merged and rebranded as the Innovator Founder Route.
Endorsing Body System Gets a Makeover for New Innovator Founder Visa
To address both of these issues, the Home Office has decided to reduce the number of endorsing bodies from more than fifty to just three - Geminus Innovation (t/a Innovator International), Envestors, and the newly established UK Endorsement Services. They have also capped the fees that endorsing bodies can charge for their services Applicants still must have a business idea that has been assessed by one of the three newly approved endorsing bodies as being innovative, viable, and scalable. However, the Home Office will now ensure that these endorsing bodies deeply understand what the Home Office is looking for from Innovator Founder visa applicants and will ensure that the endorsing bodies apply the criteria for endorsement uniformly regardless of which of the three endorsing bodies receives an application. It will no longer be possible, as was previously the case, to "shop around" the various endorsing bodies to find someone that was willing to support a business idea after having been rejected by one of them.
The net result of this should be a more rigorous endorsement process from all three endorsing bodies which will maintain common standards and a single interpretation of what constitutes an innovative, viable, and scalable business. However, at the end of the rigorous endorsement process, we anticipate that a much higher proportion of those people that receive a letter of endorsement will not subsequently be rejected for not having an innovative, viable, and scalable business idea.
New Challenges With Endorsement Process for Innovator Founder Visa Applicants
The changes announced alongside the new Innovator Founder visa are positive in many ways but will also create new challenges for applicants during the endorsement process.
- More Applications Per Endorsing Body May Create Bottlenecks - With only three endorsing bodies approved to issue endorsements after 13 April 2023, each endorsing body will receive a much large number of applications. This increased volume of applications per endorsing body will either cause bottlenecks that slow down the endorsement process or will cause endorsing bodies to make much quicker decisions about a project.
- Pressure On Endorsing Bodies to Rule Out Weak Applications Quickly - Since all the applications that were previously spread over more than 50 private endorsing bodies, as well as dozens of UK Universities, will now be channeled through three endorsing bodies, this means they will have to make quick decisions based on their first impression of the project. Endorsing bodies are unlikely to be able to provide extensive feedback about projects as many have heretofore been able to do.
- Pressure on Applicants to Get Endorsement Submission Right First Time - Applications that have critical failure points will likely be rejected with no further conversation available. Whilst applicants will be free to re-apply with the same project, it is unlikely that a different endorsing body will see things differently and will be assessed with a heightened degree of caution by the same endorsing body given the initial failure points.
In other words, competition for endorsement will increase significantly as a result of these changes. Overall, though, the new changes to the endorsement system for UK visas are expected to benefit overseas entrepreneurs. By simplifying the process and eliminating hidden costs, the UK government is sending a message that it welcomes international talent and is committed to supporting the growth of innovative businesses in the country.
Given the competitive nature of the UK Innovator Founder route and the uncertainty inherent in the process as the new rules and guidelines are put into practice and tested, you may need to lean on our expertise in order to maximise the chances that your attempts to secure an endorsement are successful. If you are considering starting a business in the UK and are interested in the Innovator Founder Visa, please reach out today for a free, no-obligation initial consultation.