This program aims to attract startups to Canada. Critics say it’s being used as ‘a backdoor way into the country’

Another questionable immigration program and pathway it appears, on substantive, due diligence and processing time grounds:

They come from every corner of the world with big dreams and ideas, looking for a base and investment capital to plant the seeds of their startup enterprises — and potential permanent residence in Canada.

So much is at stake for their success — and for Canada’s Start-Up Visa (SUV) immigration program, which gives these entrepreneurs a pathway for permanent residence by harnessing their business innovations and brilliance.

Amid a current economic slowdown, the federal government has vastly scaled up its annual SUV intake from 1,000 spots (including the entrepreneurs’ family and those in the self-employed stream) in 2022 to 3,500 this year, 5,000 in 2024 and 6,000 in 2025.

Yet, it is also one of the economic immigration programs that has received the least public attention — and scrutiny — despite the significant role it plays in Canada’s job creation and global competitiveness.

While no one disputes the need to expand the initiative, critics fear its rapid growth feeds a wild-west-type landscape amid the program’s already lengthy processing time and concerns over its potential misuse for immigration to Canada.

“What the program has done is created an enormous number of applications from people who want to move to Canada and are ready to pay money to find a backdoor way into the country,” said Sunil Sharma, managing director of Toronto’s Techstars, whose workshops are meant to connect budding entrepreneurs with capital, mentors and networking.

Launched in 2013, the SUV program has no minimum requirements on education, net worth or business experience, in contrast to Canada’s typical economic immigration process, which favours those who are younger and have Canadian education credentials and work experience.

The most crucial qualifying element is the letter of support by an organization designated by the Immigration Department to vet applicants’ business proposals based on their worthiness and readiness. Notably, successful applicants are not obliged to carry through their business plans upon becoming permanent residents.

The SUV replaced the archaic Entrepreneur Program, which offered a three-year conditional residency for people with a minimum net worth of $300,000 and required that they open mall kiosks, corner stores, restaurants and other small businesses before they obtained permanent status. Today, Canada is looking to attract innovative business startups that will give the country a cutting edge on the global stage.

The new SUV pilot program got off to a slow start. It fell short of its initial target of 2,750 applications a year. In the first three years, it only attracted 113 principal applicants, whose business plans, until June 2016, were subject to mandatory industry peer reviews as a quality control mechanism.

“There were minimal levels of fraud and misuse associated with the SUV pilot and the integrity mechanisms employed were successful in identifying issues,” said an Immigration Department evaluation report in late 2016.

“However, there is a potential program integrity gap regarding the monitoring of designated entities’ SUV activities.”

The report also pointed to the small size of the applicants, which allowed immigration officials to watch the designated organizations and applicants’ activities closely.

In 2018, Ottawa made the pilot a permanent program. Since then, the total number of applications received has shot up to a total of 2,035 in the past five years, up from just 291 between 2013 and 2017.

And so has the program’s average processing time, which has crept up from an initial 158 days to 16 months in 2019, and now sits at 32 months. As of last September, there were 1,368 permanent residence applications in the queue for the SUV business program.

Critics attribute the exponential growth of interest in the program to the rogue promotion by unscrupulous recruiting agents, sometimes lawyers and consultants, who pitch it as an easy pathway for immigration with minimal requirements.

These agents, say critics, offer to enrol prospective candidates with business plans and ideas in incubation and accelerator programs — some of them provided by government designated SUV assessment organizations — at a hefty fee, to get the coveted letter of support.

“They’re making millions of dollars in fees and they’re flooding the program with applications,” said Sharma, whose accelerator is a federal government-designated organization under the SUV program.

“For those of us who are using the startup visa for its true intention, we’re having a very, very difficult time getting those visas through.”

Immigration consultant Phil Mooney said unscrupulous agents and middlemen often target prospective immigrants who otherwise have a tough time qualifying for the restrictive economic immigration programs that favour young people with Canadian education and work credentials in the Express Entry points selection system.

A contract to a prospective SUV applicant he recently perused from a Lagos-based investment company in Nigeria asked for a $165,500 (U.S.) payment that included eligibility assessment, business validation and a month-long incubation training in business strategy preparation and market analysis.

It also claimed that two designated SUV entities in Canada agreed to offer consultancy services.

“It became pretty clear that anybody over 35 could never get here through Express Entry. Anybody with less than perfect English or anybody with no Canadian work experience or no degree in Canada, nobody can come anymore,” said Mooney.

“But there’s still a whole lot of people out there with a lot of money.”

Their motivation, he said, is Canadian permanent residence, and not about starting a business. (Immigration data shows those aged 40 and over made up more than half of the SUV applicants since its inception, though almost 86 per cent had at least a bachelor’s degree.)

SUV applicants can get their letter of support from three tiers of designated organizations recommended by two investment industry groups and sanctioned by the Immigration Department:

Business incubators that support a startup or early stage company to grow by providing them office space, mentorship, management support;

Angel investor groups made up of wealthy individuals who provide financial backing for small startups, usually asking for ownership equity in these companies; or

Venture capital funds consisting of a group of investors which pools money to place it in startups which show promise of growth.

Under the program, designated angel investors and venture capitalists have to commit $75,000 and $200,000, respectively, to the business proposals they have chosen to support.

Between 2014 and 2022, 881 SUV business applications were approved for permanent residence but an overwhelming 78.4 per cent of them were supported by business incubators, according to government data obtained by immigration lawyer Siavash Shekarian.

Startups endorsed by angel investors made up 18 per cent of the successful SUV applications and less than three per cent were put forward by the high-return venture capitalists.

When the SUV program was launched in 2013, there were only 28 designated organizations, including 25 venture capital funds and three angel investor groups.

By 2018, when it became a permanent program, the number of entities almost doubled, with 21 ventures, eight angels and 24 business incubators.

Today, there are 88 groups — 28 ventures, eight angels and 52 incubators — that have the authority to issue the letter of support to SUV applicants.

To be designated, these organizations must be vetted and recommended to the Immigration Department by the National Angel Capital Organization (NACO) and the Canadian Venture Capital and Private Equity Association (CVCA).

The industry organizations are also responsible for convening peer review panels, at the request of immigration, to independently assess and ensure due diligence is given by the designated entity that issues the letter of support.

The Immigration Department prohibits designated entities from charging fees for the assessment of business proposals or for the issuance of the support letter. However, there are no specific rules on other fees.

National Angel Capital Organization’s (NACO) website says the designated entities under its watch cannot charge applicants fees for the use of physical space, services and programs “above industry standard rates” without references to what the industry standards are.

With willing patrons looking for a shot at permanent residence to Canada and loose regulations over designated organizations, critics say the SUV program is open to abuse.

“The designated entities are the gatekeepers to the whole thing,” said immigration consultant Ramin Mirzadegan, who focuses on economic immigration and has assisted in dozens of SUV applications from Iran, the top source country of applicants.

“The clients feel like if they do this, they get the LOS (letter of support) and everything will be done. That’s how it’s sold and that’s how people are taken advantage of.”

Under the traditional business immigration programs, immigration officials are responsible for assessing the merits of the business plan, but that task in the SUV program has been entrusted to the third-party designated groups based on their business and investment expertise.

“The program by design is outsourcing innovation to the designated organizations,” said immigration lawyer Shekarian, whose practice focuses on business immigration.

“And here’s the problem. The way I define innovation can be very loose and very easy. But how do I as immigration (department) ensure that those incubators pick good people with good ideas as opposed to those organizations that are in it just for the money?”

Shekarian said immigration officials and designated organizations should raise the bar to qualify only SUV applicants whose business ideas are already in “post-ideation” stage rather than just accept a business proposal on paper.

“If you say, ‘I need more than just ideation now. I need validation. I need traction now. I need tech readiness. I need to see something,’ ” he explained, “it attracts genuine entrepreneurs and makes it harder for bad actors to just bring new people who just want to buy a passport.”

The Star reviewed more than a dozen Federal Court judgments over the past five years involving SUV applicants who were refused under the SUV program and challenged the immigration decisions.

Although the designated entities that issued their letter of support were not a party or the subject of the judicial reviews, the court rulings often cited the immigration officials’ concerns over the lack of “due diligence” in the assessment process that were concurred by independent peer review panels.

One court decision in 2020 cited an immigration officer’s claim that a Vietnamese woman was pursuing her proposed business venture for the primary purpose of acquiring status in Canada despite a commitment from Empowered Startups Ltd., a designated organization in B.C., to “incubate” her business venture.

The officer, according to Justice Patrick Gleeson, raised concerns that Empowered provided the applicant the business idea to develop and market a wearable sensor technology.

In another case in 2019, the court said an immigration officer referred another Vietnamese applicant’s business proposal to a peer review panel to assess whether due diligence was completed by Empowered when accepting it for incubation. The panel, according to Justice Rene Leblanc’s ruling, concluded that there had been an insufficient level of due diligence by the designated organization.

In yet another court decision in 2019, now retired Justice Robert Barnes referenced a peer panel review ordered by the immigration department with “concerns about possible (Empowered) involvement in assisting applicants in acquiring status or privilege.”

The review panel’s report, said the court decision, stated that the female applicant from Hong Kong “has committed to paying $300,000 for a year of incubation services,” saying that was “not normal for an incubator in Canada.”

A court case in 2022 involved two applicants in China who received a letter of support from Spark Commercialization and Innovation Centre in Oshawa for a joint partnership with an existing client of the organization.

The peer review panel, cited Justice Shirzad Ahmed’s decision, found a lack of due diligence on Spark’s part in its assessment of the Chinese applicants’ business proposal.

All the four judicial review applications were dismissed by the court.

Christopher Lennon, president and general counsel of Empowered, declined to comment on the specific cases but pointed out that the company was not a party to those proceedings and anything stated in these cases is not necessarily correct and in some cases, might be incorrect.

“Our role as designated entities is to recruit, vet and find high potential entrepreneurs to start new businesses in Canada. And part of our role is also to help them start those new businesses in Canada. So we’re advisers and mentors. So we definitely have involvement in crafting and helping them launch the new business,” Lennon said.

“Are we involved in the conceptualization of the business in many cases? Absolutely. Do we give them business ideas off the shelf? No, never.”

While Empowered is a big supporter of the SUV program, Lennon said the peer review is one area that is structurally flawed by design because it sets up some serious conflict-of-interest issues when a business proposal approved by a designated organization is reviewed by a peer panel made up of direct competitors.

The SUV program, he said, does not prescribe the due diligence process and allows each organization to have their own, as long as they can demonstrate a thorough process to assess business proposals, he said.

“You need that flexibility,” said Lennon, and immigration officials already have the leverage to remove an entity’s designation “if they’re ever concerned an entity is routinely or flagrantly not complying with their process.”

With the cost of recruiting entrepreneurs for Canada being downloaded to private entities like his, Lennon said they have to be reimbursed to cover marketing, travelling and staff to vet and support these foreign entrepreneurs.

“We need to be able to run a business ourselves. There are enough designated entities and there’s enough competition that people can shop around for different designated entities and different prices,” said Lennon.

“This is where this whole price thing that I hear comes up from time to time.”

Sherry Colbourne, president and CEO of the Spark Centre, said it was approved as a designated entity in 2018, at a time when NACO came in and took over the administration of the program from another now defunct group.

She said Spark, one of 17 not-for-profit innovation centres in Ontario, ran into a problem with “due diligence” with some of the early clients because the SUV program lacked clear guidance, said Colbourne.

“So in that particular (court) case, I really chalk it up to us not fully understanding the rule because there was no onboarding or training or any guidance,” she said.

Colbourne said it is challenging to come up with industry standards in fee structure because the costs in delivering these incubator and accelerator programs differ by regions, though she agrees on the need to improve the vetting of the designated entities because the administration of the SUV program relies on a “trusted network.”

“I absolutely believe that increasing the number (of SUV spots) is the right thing to do,” said Colbourne, who has heard “a lot of stories” about people being exploited and about people trying to exploit the program.

Claudio Rojas, NACO’s CEO, was unavailable for an interview and referred the Star’s questions about the backlogs and alleged misuse of the SUV program, as well as queries about the issues of due diligence and peer review panels, to the Immigration Department.

In a statement, Rojas said business incubators in Canada offer a wide variety of programming and thus fees will also vary. NACO now has about 100 organizational members, who pay between $750 and $2,500 a year to join the group.

Since 2020 and through the pandemic, he said NACO recommended an average of four organizations to immigration for designation (4 in 2020, 7 in 2021 and 2 in 2022), said his statement.

Kim Furlong, CVCA’s CEO, said her members’ approach is very different from the accelerators and incubators and groups applying to CVCA for designation are independently and individually vetted by KPMG before they are recommended to the Immigration Department.

The process is very selective and the bar is high, said Furlong, hence the number of SUV applications supported by its designated entity is very limited.

“These are serious investors and they’re willing to make a commitment in investing in a company,” said Furlong. “Our members have skin in the game.”

The Immigration Department touted the SUV business program as a success, having welcomed 900 entrepreneurs as permanent residents and bringing in more than 300 startups, including ApplyBoard, Litmus, ProteinQure, Clik.ai, Virtro and AGADA Biosciences.

Designated organizations have committed over $7 million to approved startups through the program, and some of the businesses have been acquired by larger companies.

The department said it has internal mechanisms for reporting suspected fraud and the means to investigate or refer cases to the Canada Border Services Agency or law enforcement agencies, as warranted.

Officials can “inspect” an organization for compliance and suspend a designated entity or revoke its designation if there’s a reason to suspect it submitted false, misleading or inaccurate information, said Immigration Department spokesperson Remi Lariviere.

However, between 2013 until March 2021, only one designated entity had been inspected; one had been suspended and 25 had been de-designated. The department said most de-designated organizations requested to be de-designated.

Currently, SUV applicants are eligible for a one-year closed work permit, which allows them to work on their business project inside Canada while waiting for the processing of their permanent residence.

Under the changes announced by the immigration minister in June, these applicants will be able to apply for an open work permit that lasts for three years in duration and allows them to work in Canada for any employer. Some critics worry the prospect of an extended open work permit would give unscrupulous agents another tool to market and abuse the SUV program.

“SUV applications will be prioritized for processing if they are supported by designated entities that have committed capital to the startup proposal,” said Lariviere. “The amount of capital required for the prioritization of these applications will be announced shortly.”

Meanwhile, talented entrepreneurs are not going to wait for Canada to open its doors to them.

Andrew Airelobhegbe, a serial startup entrepreneur from Nigeria, and three partners started Lenco, a multinational online business banking platform, in 2021, which now employs 49 in Zambia and Nigeria. The company processes $600 million (U.S.) in transactions per month and have over 36,000 businesses as customers.

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He and three of his co-founders applied for permanent residence under the SUV program in March 2021 and are still waiting for a decision. Meanwhile, he received his O-1 visas to the U.S. and Exceptional Talent visa to the U.K. last year — both within weeks — to take his operations there.

Airelobhegbe said he would’ve loved to base Lenco’s North American operations in Canada with its huge immigrant market, and the company’s four jobs in software engineering and data science in San Francisco could have been Canada’s.

“At the end of the day, it’s not even about permanent residence. We just want to build a successful business and have access to the market,” said the 30-year-old, who applied for a work permit in December 2021 to work on his project in Canada. It was refused in January because Canadian immigration didn’t believe he would leave.

“You stay where your work is. If you need to spend more time in one market, you need more access to it.”

Source: This program aims to attract startups to Canada. Critics say it’s being used as ‘a backdoor way into the country’