California Rolls Out New Venture Capital Diversity Reporting Requirements

Part II: Key Compliance Requirements

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.

Compliance with California’s new Fair Investment Practices by Venture Capital Companies Law (FIPVCC), is fast approaching. As discussed in “Part I: Who Is Covered and When Must You Register/Report?” of our FIPVCC-related content, the FIPVCC, enacted by Senate Bill 54 and amended by Senate Bill 164, requires certain venture capital companies (“covered entities”) to collect and report certain demographic data about the founding teams of the portfolio companies in which they invested during the preceding year.

Generally, covered entities must register with the California Department of Financial Protection and Innovation (DFPI) by March 1, 2026 and provide an annual report of the demographic information to the DFPI beginning on April 1, 2026. The DFPI has provided additional information related to the VCC Reporting Program on its landing page, including a placeholder for its VCC Registration Portal, which is expected to be open prior to the first March 1 deadline.

Covered Entity Registration: Due by March 1, 2026

Covered entities must register with the DFPI and submit the following identifying and contact information through the DFPI VCC Registration Portal:

• The name of the covered entity.
• The name, title, and email address of the person who serves as the designated point of contact for the covered entity.
• The designated email address, telephone number, physical address, and internet website of the covered entity.

To the extent any of the information above changes, covered entities are required to update the information in accordance with the annual report submissions, described below. Failure to update this information timely can result in penalties; however, the FIPVCC does require the DFPI to notify the covered entity of the failure and permit 60 days for the covered entity to update the information without penalty.

Annual Report: Due April 1, 2026 and annually thereafter.

Completion of the annual report is a twofold exercise involving (1) surveying each founding team member of a business that has received funding from the covered entity; and (2) compiling the survey data into the annual report to be submitted to DFPI.

Venture Capital Demographic Data Survey

The FIPVCC requires covered entities to gather demographic data from the founding team members of the businesses receiving investment or financing via a standardized demographic survey provided by the DFPI. The DFPI has published the template VC Demographic Data Survey on its landing page.

“Founding team member” means a person who is either:

1. Designated as the chief executive officer or president, or
2. Satisfies all of the following conditions:
   • The person owned initial shares or similar ownership interests of the business;
   • The person contributed to the concept of, research for, development of, or work performed by the business before initial shares were issued;
   • The person was not a passive investor in the business.

Generally, the demographic data required to be reported and therefore included for collection via the survey includes:

1. The gender identity of each member of the founding team, including nonbinary and gender-fluid identities.
2. The race of each member of the founding team.
3. The ethnicity of each member of the founding team.
4. The disability status of each member of the founding team.
5. Whether any member of the founding team identifies as LGBTQ+.
6. Whether any member of the founding team is a veteran or a disabled veteran.
7. Whether any member of the founding team is a resident of California.
8. Whether any member of the founding team declined to provide any of the information described in subparagraphs (A) to (G), inclusive.

The survey must also include a disclosure that states that: the founding team member’s decision to disclose their demographic information is voluntary; no adverse action will be taken against the founding team member if they decline to participate in the survey; and the aggregate data collected for each demographic category will be reported to the department. Additionally, covered entities (and the DFPI) are prohibited from at all encouraging, incentivizing, or attempting to influence the decision of a founding member to participate in the survey in any way.

Surveys may only be provided to a founding team member after the covered entity has executed an investment agreement with the business and made the first transfer of funds.

Venture Capital Demographic Data Report

The FIPVCC requires covered entities to summarize the information received from the founding team members of the businesses receiving investment or financing and provide it to DFPI in an aggregated and anonymized report (“Report”). The DFPI has provided the sample template for the VC Demographic Data Report on its landing page.

Generally, a covered entity must include the following information with respect to the prior calendar year in its Report:

• Each demographic category identified in the survey A-H, reported at an aggregated level.
• The number of venture capital (VC) investments to businesses primarily founded by diverse founding team members, as a percentage of the total number of VC investments the covered entity made, in the aggregate and broken down into the survey categories in A-H. The information should be anonymized to the extent possible.
• The total amount of VC investments to businesses primarily founded by diverse founding team members, as a percentage of VC investments made by the covered entity, in the aggregate and broken down into the survey categories in A-H.
• The total amount of money in VC investments the covered entity invested in each business during the prior calendar year.
• The principal place of business of each company in which the covered entity made a venture capital investment during the prior calendar year.

“Diverse founding team member” means a founding team member who self-identifies as a woman, nonbinary, Black, African American, Hispanic, Latino-Latina, Asian, Pacific Islander, Native American, Native Hawaiian, Alaskan Native, disabled, veteran or disabled veteran, lesbian, gay, bisexual, transgender, or queer.

Record Keeping, Fees, and Other Requirements

In addition to the requirements above, covered entities are subject to certain other administrative requirements. Specifically, covered entities are required to pay a fee per Report of $175, the amount of which may be adjusted by the DFPI in the future. Additionally, covered entities are required to keep all records related to a Report for at least five (5) years after submitting the Report to the DFPI.

Additionally, it is important to note that the information gathered under the FIPVCC includes personal information that may implicate certain privacy compliance obligations under U.S. federal and state laws as well as other jurisdictions. Covered entities should consider whether the information gathered represents a new category of sensitive data to be considered under its privacy and data security programs.

Penalties

Violations of the FIPVCC, including failing to register or report or for making untrue statement of a material fact in any Report, may result in action by the DFPI Commissioner. For violations of FIPVCC, a covered entity can face any of the following Commissioner actions:

• Desist and refrain from the violation.
• Order requiring costs, representing reasonable attorney’s fees and investigative expenses for the DFPI investigations.
• Monetary penalties
  • Generally, monetary penalties shall not exceed $5000 per day of non-compliance for each day of the violation.
  • However, reckless and knowing violations may result in monetary violations that exceed $5000 per day for each day of the violation.

Foley Can Help

We are tracking the FIPVCC and related DFPI updates. For any questions regarding the FIPVCC, please reach out to the authors or another member of the Foley team.