⚖️ California’s New Demographic Reporting Law for VC Funds

🎉 Happy Friday, funds family!

Today, we’re interrupting the programming of our Fund Terms series to share an update on a new compliance regime for venture capital firms.

But first..

Want to listen to this article? Check out the audio version!

California just enacted a new mandatory state-level compliance regime for venture capital firms.

The Fair Investment Practices by Venture Capital Companies Law (Corp. Code Div. 2.5, Title 4) requires certain VC firms with a California nexus to register with the state and file annual demographic and investment reports starting in 2026.

Here’s what fund sponsors and lawyers need to know.

Who Is Covered ☂️

A “covered entity” is a venture capital company that:

1️⃣ Primarily invests in startup, early-stage, or emerging growth companies; and

2️⃣ Has a California nexus, which includes the following: 

• The venture capital company is headquartered in California.

• The venture capital company has a significant presence or operational office in California.

• The venture capital company makes venture capital investments in businesses that are located in, or have significant operations in, California.

• The venture capital company solicits or receives investments from a person who is a resident of California.

Bottom line: It’s going to apply to tons of VC funds, whether or not the GPs are in California. Many multi-state or “remote-first” VC firms will fall into this regime.

What Covered Entities Must Do

Here are the immediate next steps for VC funds with a California nexus. 

1. Register with DFPI (Due March 1, 2026)

   Covered entities must register with the California Department of Financial Protection and Innovation (DFPI), providing basic identifying and contact information and updating it annually.

   This is the on-ramp into the regulatory system.

2. File an Annual Report (Due April 1, 2026, and annually thereafter)

   The annual report covers venture capital investments made during the prior calendar year and must include the information described below. 

   Founding-Team Demographics (Aggregated & Anonymous)

   For each portfolio company funded during the year, the firm must report aggregated survey data from founding team members regarding:

   • Gender identity

   • Race and ethnicity

   • LGBTQ+ status

   • Disability and veteran status

   • California residency

   • Whether founders declined to provide information

   Key guardrails:

   • Surveys must be voluntary

   • Conducted after the investment closes

   • Include a clear “decline to state” option

   • Reported only in anonymized, aggregate form

   Investment Metrics 🔬

   Covered entities must also report:

   • The percentage and dollar amount of investments in companies primarily founded by “diverse” founding teams

   • The total dollar amount invested in each portfolio company

   • Each portfolio company’s principal place of business

Non-Compliance Penalties 

• DFPI can bring enforcement actions and impose penalties for non-compliance.

• Records supporting the annual report must be retained for at least five years.

• Reports will be publicly available. 

Next Steps for VC Funds 📑

1. Determine whether you have a California nexus (given the broad definition, this will likely be a significant number of VC funds). 

2. Register with the DFPI by March 1. 

3. Reach out to your portfolio companies and start collecting information for the April 1 deadline. 

4. File your initial report for April 1. 

5. Build demographic survey workflows into post-closing processes for future annual reports. 

The DFPI’s page on the new compliance regime is here: VCC Reporting Program - DFPI

Thanks for reading, everyone.

Have a great weekend! 🙌 

⚠️ Note: This newsletter is for informational purposes only and nothing should be considered legal advice. For that, hire a lawyer! I am a lawyer, but not your lawyer (unless I actually am your lawyer because you’ve signed an engagement letter and we’re working together). This newsletter may be considered attorney advertising.