A diversity initiative reporting statute known as “The Fair Investment Practices by Venture Capital Companies Act” (the “Act”) was enacted in 2023 and, as amended in 2024, originally provided an effective date of 1 March 2026. The legislation is intended to foster diversity in the VC industry and more equitable investment practices. Once fully in force (see below), the Act will require certain entities which invest in startup, early-stage or emerging growth companies (“Covered Entities”) to register with the California Department of Financial Protection and Innovation (the “DFPI”) and provide DFPI with identification and contact information. Subsequently, every year a Covered Entity must report aggregated demographic information about the founders of the investee companies in which they have invested during the reporting period.
The Act applies to “venture capital companies” (“VCCs”) that primarily invest in, or finance, startup, early-stage or emerging growth companies that are connected to California, as well as VCCs that solicit or acquire California investors.
A VCC is defined as an entity that makes substantial venture capital or derivative investments, is a venture capital fund or a venture capital operating company.
The Act’s definitions are broad and not detailed, so the legislation may require compliance by entities that might not consider themselves to be traditional VC funds.
Covered entities must submit an annual report (Venture Capital Demographic Data Report) that includes aggregated, anonymized demographic data from the standardized surveys (Venture Capital Demographic Data Survey), along with metrics showing the number and percentage of investments in companies primarily founded by diverse teams.
A Covered Entity must provide the DFPI with certain contact information and keep it updated annually. Thereafter, the Covered Entity must provide a prescribed survey (a “Venture Capital Demographic Data Survey”) to the founders of their investee companies, the contents of which are intended to form the basis of an annual report to the DFPI by the Covered Entity (“Venture Capital Demographic Data Report”) addressing the following items:
Surveys may only be sent after closing, and the participation in the survey by the investee companies is not required. Filed reports will be a matter of public record.
DFPI is authorized to impose an administrative fee of $175 on each reporting Covered Entity, which must preserve relevant records for at least 5 years per report.
If required information is submitted more than 60 days late, DFPI may impose penalties of up to $5,000 for each day of the delinquency. Other consequences may include enforcement actions (which may seek injunctive relief), public disclosure of the Covered Entity’s noncompliance, and the assessment of administrative costs.
In March 2026 DFPI announced that it was embarking on a rulemaking project to reflect comments received on the Act, and that pending the issuance of such rules the implementation and enforcement of the Act would be stayed. Consequently, the 1 April 2026 deadline provided in the Act for initial compliance is suspended until further notice.
Notwithstanding the recent regulatory stay of the Act’s enforcement, investment entities with a California connection (even a tenuous one) should act quickly to determine whether their clients are within the purview of the Act. Once implementation and enforcement of the Act are announced, the gathering of the necessary information and the establishment of robust record retention policies should begin promptly.
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