“The California Department of Financial Protection and Innovation (DFPI) has announced that it plans to file a rulemaking in response to various stakeholder comments related to the fair investment practices mandated by the Venture Capital Companies Act,” the state agency posted on its website in mid-March. “Implementation and enforcement of [law] Will be kept suspended until the rule making work is completed and the final rules are implemented.
California lawmakers first passed the measure in 2023, and it was signed by Governor Gavin Newsom shortly thereafter. For decades, women and people of color have received only a small share of overall startup funding relative to their representation in the US population. Lawmakers hope greater public scrutiny on investment decisions will help promote greater equity in the market, including for people with disabilities, retired military or LGBTQ+ people.
The law requires venture capital and certain other investment firms to file annual reports starting March 1 last year detailing the overall composition of founding teams and the amount of money they provided to various founders. The firms had to collect demographic data through a voluntary survey which was then anonymized. California officials planned to publish the filing online. Lawmakers amended the law in 2024 to delay reporting until April 1, 2026, and enable the state to impose daily fines for noncompliance.
The California Department of Financial Security and Innovation did not immediately respond to a request for comment on the authority used to circumvent the deadline set by lawmakers. Newsom’s office also did not immediately respond to a request for comment.
The legislation was supported by financiers focused on providing funding to entrepreneurs from underrepresented backgrounds. But the National Venture Capital Association, the tech investment industry’s leading trade group, opposed it. The group argued that voluntary data collection would inflate diversity figures and that publishing inaccurate data could lead to unfair attacks on investors who are actually trying to tackle diversity issues. Over the past year, the Trump administration has denigrated and attacked diversity, equity and inclusion, or DEI, initiatives in both the public and private sectors, causing many businesses and organizations to back away from them.
In February, the Venture Capital Association wrote to Newsom asking him to again extend the reporting deadline because, in its view, the state had bungled the process. According to the association, California officials did not publish the standardized survey that founders were required to fill out until earlier this year, and even at that time they did not offer a way for companies to register with regulators as required by law. “This administrative timeline creates an environment ripe for error and threatens to generate the misleading and unfavorable data we have previously warned against,” wrote Bobby Franklin, the association’s president and CEO.
Last month, as the deadline for the first report approached, some entrepreneurs and investors began complaining on social media about the survey effort. “The latest California malarkey is the requirement for venture investors to collect/report racial and gender data,” wrote Blake Schall, founder and CEO of venture-backed aviation startup Boom Supersonic. “I want to live in a world where merit matters – not skin color or what’s between your legs.”
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