California Rolls Out New Venture Capital Diversity Reporting Requirements

Part I: Who Is Covered and When Must You Register/Report?

Key Takeaways

• California’s new law, Fair Investment Practices by Venture Capital Companies, will require diversity reporting by venture capital and similar investment firms with a California nexus beginning in 2026.
• Deadlines are fast approaching with a March 1, 2026 deadline to register with the DFPI and an April 1, 2026 deadline to file the first annual reports for 2025 investments.
• The term “covered entities” is broad and apply to those with a “California nexus,” which includes those investing in California-based portfolio companies or receiving investments from California entities or residents and may even apply to funds that are based outside California.

Initial compliance deadlines are rapidly approaching for California’s new Fair Investment Practices by Venture Capital Companies Law (FIPVCC), with the California Department of Financial Protection & Innovation (DFPI) delivering initial guidance and other resources to assist covered entities with compliance.

The FIPVCC, enacted by Senate Bill 54 on October 8, 2023 and subsequently amended by Senate Bill 164 on June 29, 2024, requires venture capital (VC) firms, along with certain other private investment vehicles with a California nexus, to collect and report demographic data about the founding teams of their portfolio companies in which they invested during the preceding year. This move is a part of California’s broader push to increase transparency around who receives VC funding and to highlight diversity trends in the startup and funding spaces. It also creates a new level of complexity and compliance requirements for VC firms operating within the state.

The DFPI, tasked with overseeing the aptly named “VCC Reporting Program,” has published a landing page with additional information and resources, including sample templates for the VC Demographic Data Survey and VC Demographic Data Report. DFPI also has a placeholder for its VCC Registration Portal, which is expected to be open prior to the first March 1 deadline.

Below is a quick look at who is covered and the impending registration and reporting deadlines.

Who is Covered Under the Law?

The FIPVCC applies to “covered entities,” which are broadly defined as those entities who meet the following criteria:

1. Is a “venture capital company” under Cal. Code Regs. tit. 10, § 260.204.9(a)(4);
2. Primarily engage in the business of investing in, or providing financing to, startup, early-stage, or emerging growth companies; and
3. Meet any of the following criteria (often referred to as having a “California Nexus”):
   •  Is headquartered in California.
   • Has a significant presence or operational office in California. 
   • Makes venture capital investments in businesses that are located in, or have significant operations in, California.
   • Solicits or receives investments from a person who is a resident of California.

Under Cal. Code Regs. tit. 10, § 260.204.9(a)(4), a “venture capital company” is defined as an entity that meets one or more of the following conditions:

(A) on at least one occasion during the annual period commencing with the date of its initial capitalization, and on at least one occasion during each annual period thereafter, at least fifty percent (50%) of its assets (other than short-term investments pending long-term commitment or distribution to investors), valued at cost, are venture capital investments, as defined in subsection (a)(5) of this rule, or derivative investments, as defined in subsection (a)(6) of this rule; or

(B) the entity is a “venture capital fund” as defined in rule 203(l)-1 adopted by the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended (17 C.F.R. 275.203(l)-(1)); or

(C) the entity is a “venture capital operating company” as defined in rule 2510.3-101(d) adopted by the U.S. Department of Labor under the Employee Retirement Income Security Act of 1974 (29 C.F.R. § 2510.3-101(d)).

Further,  “venture capital investment,” referenced in subsection (A) above, means an acquisition of securities in an operating company in which the investment adviser, the entity advised by the investment adviser, or an affiliated person of either has management rights and/or participates in the management of the operating company (e.g., through a board seat), such fund would likely be covered under the FIPVCC.

While certain criteria for having a California Nexus  are straightforward, such as being headquartered in California, maintaining a significant presence or operations or whether a portfolio company has significant operations is less clear. The DFPI has not yet clarified what constitutes “significant presence,” “operational office,” or “significant operations” , clarity of which will be critical to applicability determinations.

Accordingly, the broad definition of “covered entities,” as currently written, may apply to funds regardless of strategy and/or that are based outside California.

Important Deadlines

Covered entities must meet two major compliance milestones:

• March 1, 2026 – each covered entity must register with the DFPI by submitting identifying and contact information through a registration portal. The DFPI has indicated the portal will go live before the deadline.
• April 1, 2026 (and annually thereafter) – with regard to the covered entity’s investments for the preceding calendar year, each covered entity must:
  • Distribute a standardized, voluntary demographic survey to the founding team members of each portfolio company in which it invested during the preceding calendar year.
  • Submit an aggregated, anonymized annual report to the DFPI summarizing these survey results. This annual report must include aggregated demographic data, investment metrics related to diverse founding teams, total capital invested during the year, and the principal place of business of each portfolio company.

Founders’ participation will be entirely voluntary, and covered entities are explicitly prohibited from estimating demographic information for founders choosing to opt out. Additionally, surveys cannot be provided until after execution of the investment agreement and the covered entity has made the first transfer of funds.

The DFPI is required to make reported information publicly available in a searchable and downloadable format, meaning funds should expect heightened scrutiny from limited partners, regulators, and the public. Failure to comply may result in enforcement actions or monetary penalties.

With these deadlines fast approaching, firms should immediately assess whether they are covered entities and if so, work with their legal advisors to build the internal systems for data collection and reporting to ensure compliance. Early preparation is key for VC firms as they begin adapting to this new level of transparency.

Foley Can Help

We are tracking the FIPVCC and related DFPI updates. We will be circulating a Part II with key compliance and reporting requirements. For any questions regarding the FIPVCC, please reach out to the authors or another member of the Foley team.