Venture capital (and private equity?) firms face new California reporting requirements
On 8th October 2023, California Senate Bill 54 (SB 54) was signed into law. SB 54, as amended by SB 164, establishes the Venture Capital Diversity Reporting Program, requiring qualifying investment firms with a California nexus to collect and report demographic data on the founding teams of their portfolio companies. The first annual report will be due in April 2026, covering investments made during 2025. Although, the reporting forms are still in development (see DFPI website, who will maintain oversight of the reporting program).
Whilst we await further guidance, the law appears to apply irrespective of where a firm is domiciled or regulated. UK firms registered with the SEC as Registered Investment Advisers (RIAs) or Exempt Reporting Advisers (ERAs) may fall within scope if they meet the statutory definition of a “venture capital company” and have meaningful ties to California. A California nexus is broadly defined and may be triggered by:
Investing in companies headquartered or primarily operating in California
Soliciting or receiving capital from California‑based investors
Maintaining personnel, offices, or operational activity in California
Further guidance is also needed to fully assess the application for private equity firms. Our friends in the US at Trillium shared some useful Insights on how even while the law is framed as for venture capital, it may touch private equity managers depending on their strategies.
Whilst the exact scope needs further guidance, what is clear is that where in scope, firms must request demographic information, including gender, race, ethnicity, disability status, and veteran status, from founding team members of each portfolio company at the time of investment. Firms must then submit aggregated, anonymised statistics to the California Department of Financial Protection and Innovation (DFPI) annually. Importantly, the obligation is to request the information; founders may decline to provide it.
With the first reporting deadline approaching in 2026, firms should begin assessing whether their activities could create a California nexus and, if so, prepare internal processes for data collection, record‑keeping, and DFPI registration. Early planning will help ensure compliance while minimising friction with portfolio companies.