Key Takeaways
VC firms will need to report to the state of California on the
diversity composition of the founding teams of the companies in
which they invest. The law is intended to increase transparency and
accountability in the venture capital industry.
Who Is Covered and Key Dates
All VC firms that engage in the business of investing in early
stage or emerging growth companies that have ties to California are
covered. Additionally, any venture capital firm that solicits or
receives investment as a limited partner from a person that is a
resident of California is also covered. VC firms must submit
certain general information about the firm to DFPI by March
1, 2026.
On April 1, 2026, VC firms must report
aggregated information with some specificity on both demographic
and geographic information for the founding teams (defined below)
that the firms invested in the prior year (from January 1, 2025, to
December 31, 2025). In addition, on an aggregated basis, the firm
needs to report the percentage of investments in primarily diverse
teams, among other information. The report will need to be filed
with DFPI.
Information To Be Included
All reporting by VC firms must be on standardized survey forms
that will be provided by the DFPI. The form of surveys to be used
for these purposes has not yet been provided to the public but must
include the following:
- Information regarding diversity, gender identity, race,
ethnicity, disability status, LGBTQ+ status, veteran status, and
residency in California of the founding team. - The “founding team” is defined as the chief executive
officer or president of the business, as well as those who owned
initial ownership interests or contributed conceptually or
developmentally to the business before such initial shares were
issued and were not passive investors (generally understood to be
founders). Members of the founding team can decline to provide
their demographic information. - VC firm contributions, the percentage of venture capital
investments (by quantity and dollar amount) to businesses primarily
founded by diverse founding team members, in the aggregate and
broken down by the diversity categories above.
DFPI will make the reports received from VC firms readily
accessible, easily searchable, and easily downloadable on its website. DFPI may
also publish aggregated data from the survey results and use the
information in a civil action under any law.
Penalties and Enforcement
If a venture capital firm fails to timely file, possible
penalties range from $5,000 per day and other fees to higher
amounts for reckless or knowing violations of the act.
DFPI also has investigative powers to require VC firms to
produce documentary material, file written reports or answers to
questions, and make public or private investigations and publish
information concerning any violations of the law. DFPI may also
make, amend, and rescind any rules, forms, and orders as needed to
carry out the provisions of the law.
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We advise you to review your investment activities to determine
whether you are subject to the act and its reporting requirements.
You should also review the governing documents of your investment
funds and investment documents with your portfolio companies to
ensure disclosure of the need to comply with California
Corporations Code §27500. We also recommend you monitor the DFPI website for
updates on the survey forms and other guidance since the reporting
timeline is near.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
