Civil Law

Venture capital companies with a nexus to California should be aware of new reporting requirements that become effective on March 1, 2026.  The reporting requirements stem from California’s Fair Investment Practices by Venture Capital Companies Law, and are intended to help the state gather demographic information about the business in which these venture capital companies invest, as well as data about the size of such investments.

Specifically, the new requirements will apply to venture capital companies meeting the definition of “Covered Entity,” which is broadly defined as follows: the venture capital company (1) is primarily engaged in the business of investing in, or providing financing to, startup, early-stage, or emerging growth companies, and (2) meets any of the following criteria: (A) is headquartered in California, (B) has a significant presence or operational office in California, (C) makes venture capital investments in businesses located in, or that have significant operations in, California or (D) solicits or receives investments from a person who is a resident of California.  Reporting requirements for Covered Entities include:

• Beginning on March 1, 2026, Covered Entities must register with the California Department of Financial Protection and Innovation (the “DFPI”) in order to provide the DFPI with a point of contact for the Covered Entity.
• Annually, a Covered Entity must provide to each founding team member of each business in which the Covered Entity invested in during the prior calendar year a voluntary survey.  In the survey, founding team members can opt to report information such as race, gender, and other demographic details.  The DFPI has provided a standard form of survey, linked below, for Covered Entities to distribute to the appropriate founding members. 
• By April 1, 2026 (and annually thereafter), a Covered Entity must submit the above demographic information on an aggregate basis to the DFPI.  The Covered Entity must also report the number of investments made in businesses primarily founded by diverse founding team members, along with certain other investment-related data; noting that all information in a Covered Entity’s annual report should be anonymized.
• After April 1, 2026, the above annual reports will be made publicly available on the DFPI’s VCC Reporting Portal, when it is available.

Given that the March 1 compliance date is right around the corner, venture capital companies should determine whether they meet the definition of a Covered Entity; noting that once a venture capital company qualifies as a Covered Entity, surveys must be distributed to all investments and portfolio companies in which it invests, regardless of whether they have a nexus to California.  Covered Entities should also consider their own internal controls and procedures, including (i) providing surveys to founding members of portfolio companies and other investments, (ii) gathering, synthesizing and anonymizing the data, and (iii) accurately reporting all information to the DFPI on a timely basis.  Find more information about the DFCPI’s VCC Reporting program here.  Find the form of DFPI Demographic Data Survey form here.

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