Key Takeaways
- California now mandates venture capital (VC) firms to report diversity data on founding teams they fund.
- March and April 2026 deadlines require firm and team demographic disclosures via forms promulgated by California Department of Financial Protection and Innovation (DFPI).
- Noncompliance triggers steep penalties, and all reports will be public and actionable by DFPI.
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.
