Drawing Investors in China to a U.S. Angel Fund

I am looking to start an angel fund and was wondering how easy it would be for mainland Chinese investors to invest in it. Would they have to apply via the EB-5 visa program, even if they didn’t want a green card? –K.S., New York

There is no requirement for mainland Chinese, or for any non-U.S. resident who wants to invest in the United States, to participate in the EB-5 program, which has been growing in popularity. “Many Chinese nationals invest directly—and fully legally—in the United States through various non EB-5 vehicles and entity structures, including funds,” says Janet Carmosky, chief executive officer of business networking group The China Business Network.

Currently, Chinese nationals can convert up to $50,000 of China’s currency into U.S. dollars and send it abroad without special permission, says Joseph J. Dehner, chair of the international services group at the law firm Frost Brown Todd in Cincinnati. If they have funds in the Bank of China, it is especially easy because a Manhattan branch office handles many U.S. transactions. “Over that [$50,000], permission of the Central Bank must be obtained,” Dehner says. “It would not be clear at any time whether the People’s Bank of China would approve an application by a Chinese citizen to invest a large sum into a U.S. angel fund. This would depend on the applicant and the politics of the moment.”

The difficulty in raising angel capital from Chinese investors is not regulatory, but a matter of overcoming issues of unfamiliarity and mistrust, Carmosky says. “When you consider that a wealthy Chinese person has numerous opportunities to do deals with his buddies in places where all the key players and drivers are familiar, including China—where the economy is much more dynamic than in the U.S.A.—it’s hard to imagine a wealthy Chinese who would find the risk/reward profile of a U.S.A.-facing angel fund, run by people he does not already know in a market he doesn’t understand, as attractive,” she says.

“U.S. Green Card Is a No-Brainer”

What sweetens domestic deals for non-citizens is the EB-5 Immigrant Investor program, established in 1990 to encourage capital investment by foreigners. It operates under the auspices of the U.S. Citizen and Immigration Services and allows foreigners to obtain permanent resident status in the U.S. if they invest $1 million in the U.S. ($500,000 in underserved areas) and create permanent, full-time jobs for American workers. “For those who qualify, buying a U.S. green card is a no-brainer,” Carmosky says.

About 90 percent of participants invest through privately owned and operated regional centers established under USCIS regulations, Dehner says. There are more than 100 such centers currently authorized, most established in rural or high-unemployment areas to take advantage of tax incentives and to lower the investment requirement to $500,000. Examples include Jay Peak ski resort in Vermont, wind-farm energy developments in Idaho, commercial office centers, hotel and restaurant developments, and even movie productions, Dehner says.

“When you go to China and India, you’ll see a lot of competition for investors at EB-5 fairs; it gets quite interesting. If you’re a wealthy Chinese family and want to send your kids to a California university with resident status and in-state tuition, this is one way to do it,” Dehner says.

Before you set up any investment fund, check with your attorney as to whether you must register with the U.S. Securities and Exchange Commission before soliciting investments, and whether your investors must be accredited.