California: Demographic Reporting by Venture Capital Companies
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APPLIES TO Applies to Venture Capital Companies with Invested Companies in CA |
EFFECTIVE January 1, 2024
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QUESTIONS? Contact HR On-Call |
Quick Look
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Discussion
SB 54, Fair Investment Practices by Investment Advisers, requires venture capital companies to collect and report data on the demographic composition of the founding teams of the companies in which they invest.
“Venture capital company” is defined as an entity that satisfies one or more of the following conditions: (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; (2) the entity is a “venture capital firm” under the Investment Advisers Act of 1940; or (3) the entity is a “venture capital operating company” under the Employment Retirement Income Security Act of 1974. This may include companies such as private equity firms, accelerators, or investor groups.
Venture capital companies must comply with the reporting obligations if they (1) either primarily engage in the business of investing in, or providing financing to, startup, early-stage, or emerging growth companies, or manage assets on behalf of third-party investors; and (2) either are headquartered in California, have a significant presence or operational office in California, make venture capital investments in businesses that are located in or have significant operations in California, or solicit or receive investments from a person who is a resident of California.
Venture capital companies must report to the Civil Rights Department (CRD) information relating to aggregate demographic information about the founding team of companies in which investments were made (i.e., gender identity, race, ethnicity, disability status, sexual orientation, veteran status, California residency status, and whether information was declined to be provided); the number and amount of investments; and the principal place of each company in which an investment was made. The CRD will provide a survey form to use for this purpose. Surveys can only be provided to founding members when the venture capital company has executed an investment agreement with the business and made the first transfer of funds. Founding members respond to the surveyed information on a voluntary basis and the venture capital company cannot take retaliatory action against them for refusing to provide the data.
The first reporting deadline will be March 1, 2025 for data obtained in 2024. The aggregated data will be published on the CRD’s website. Records must be kept for at least four years following reporting to the CRD. Failure to comply with the requirements may result in court enforcement, penalties, attorneys’ fees, and other relief. Although the bill was signed by the governor, he committed to proposing language in the next proposed budget to clarify the requirements.
Action Items
- Review the bill here.
- Implement a voluntary survey for data collection.
- Prepare for reporting in 2025.
- Update data privacy notices regarding data collection as applicable.
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