California is implementing a sweeping new statutory framework that will require venture capital firms and certain other private investment vehicles with a California nexus to collect and report, on an anonymized basis, certain aggregated demographic information of their portfolio companies’ founding teams on an annual basis.

The Fair Investment Practices by Venture Capital Companies Law (FIPVCC), enacted as California Senate Bill 54 and amended by California Senate Bill 164, reflects California’s effort to increase transparency and understanding of the demographics of founders whose companies receive venture capital financing. The FIPVCC is administered and enforced by the California Department of Financial Protection and Innovation (DFPI), which has released information and resources to assist with compliance in advance of the first deadline of March 1, 2026.

Scope of the Law

The FIPVCC applies to “covered entities,” defined broadly to mean entities that:

1. Meet the definition of a “venture capital company” (defined below);
2. Primarily engage in the business of investing in, or providing financing to, startup, early-stage or emerging growth companies; and
3. Have a California nexus.

An entity meets the definition of a “venture capital company” (defined in 10 CCR § 260.204.9(a)(4)) if:

1. On at least one occasion during the annual period commencing with the date of its initial capitalization, and on at least one occasion during each annual period thereafter, at least 50% of its assets (other than short-term investments pending long-term commitment or distribution to investors), valued at cost, are “venture capital investments” (defined below) or “derivative investments” (defined in 10 CCR § 260.204.9(a)(6));
2. It is a “venture capital fund” (defined in 17 CFR § 275.203(l)-(1)); or
3. It is a “venture capital operating company” (defined in 29 CFR § 2510.3-101(d)).

A “venture capital investment” is defined as an acquisition of securities in an operating company as to which the investment adviser, the entity advised by the investment adviser or an affiliated person of either has or obtains “management rights,” i.e., the right, obtained contractually or through ownership of securities, either through one person alone or in conjunction with one or more persons acting together or through an affiliated person, to substantially participate in, to substantially influence the conduct of or to provide (or to offer to provide) significant guidance and counsel concerning the management, operations or business objectives of the operating company in which the venture capital investment is made.

An entity has a California nexus if it:

1. Is headquartered in California;
2. Has a significant presence or operational office in California;
3. Makes venture capital investments in businesses located in, or with significant operations in, California; or
4. Solicits or receives investments from a person who is a resident of California.

The DFPI has not provided guidance on what constitutes “significant presence,” “operational office” or “significant operations.”

Given the broad definition of “covered entities” described above, this reporting regime will apply to many funds that are not venture capital funds and/or that are based outside California. For example, a venture fund located outside California that invests in any business with a location or significant operations in California is likely to be within the reach of the law.

Registration and Reporting Requirements

All covered entities need to keep the following deadlines in mind:

• By March 1, 2026, each covered entity must register with the DFPI by submitting to it certain identifying and contact information relating to the covered entity. The DFPI has indicated that a registration portal will be made available before March 1, 2026, although it has not yet been launched. Registration information must be kept current and updated in connection with future annual filings.
• By April 1, 2026 (and annually thereafter), each covered entity must: (1) send a standardized survey to the founding team members of each portfolio company in which it invested during the prior calendar year to voluntarily complete; and (2) submit an annual standardized report to the DFPI summarizing the results of these surveys. The annual report must include: (1) the aggregated and anonymized demographic information obtained through the standardized surveys; (2) investment metrics describing the number and percentage of investments made in businesses primarily founded by diverse founding team members; (3) the total amount of money in venture capital investments the covered entity invested in each business during the prior calendar year; and (4) the principal place of business of each company in which the covered entity made a venture capital investment during the prior calendar year. Covered entities can only send the survey to their portfolio companies after they have closed their investment and the investment has been funded. Completion of the survey by founders is entirely voluntary, and covered entities are prohibited from guessing or inferring demographic characteristics if a founder declines to respond.

Founding Team Members

A “founding team member” is a person who either: (a) owned initial shares or similar ownership interests of the business; contributed to the concept of, research for, development of or work performed by the business before initial shares were issued; and was not a passive investor in the business; or (b) has been designated as the chief executive officer or president.

A “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.

A founding team is “primarily founded by diverse team members” if more than half the founding team members who responded to the survey and at least one of the founding team members are diverse founding team members.

Public Availability and Enforcement

The DFPI is required to make reported information publicly available in a searchable and downloadable format. As a result, covered entities should anticipate increased scrutiny from limited partners, policymakers and other stakeholders. Failure to comply with the registration or reporting requirements may result in regulatory enforcement actions or monetary penalties.

Looking Ahead

With the first compliance deadlines fast approaching, sponsors of funds with a potential California nexus (even if they are outside California) should begin assessing whether any of their funds are covered entities under the FIPVCC and should establish internal data collection and reporting processes. Early preparation will help mitigate regulatory and reputational risk as the DFPI continues to refine its guidance and the venture capital industry adapts to this new transparency regime.

The registration portal and reporting process are still being developed and will be made available prior to the aforementioned deadlines. Covered entities should continue to monitor the DFPI’s website for updates.

Helpful Links

• Standardized survey for covered entities to send to the founding teams of the portfolio entities they invested in during the prior calendar year for those founding teams to voluntarily complete.
• Standardized report for covered entities to fill out and submit to the DFPI by April 1 of each year.
• DFPI’s website, which provides resources and guidance for complying with the FIPVCC.

We Can Help

We are following the FIPVCC closely. For any questions regarding the FIPVCC, please reach out to your contact at WilmerHale or to a member of our team.