Beginning March 1, 2026, certain venture capital entities with a designated nexus to California (“Covered Entities”) will be required to register with the California Department of Financial Protection and Innovation (“DFPI”). By April 1, 2026, they will be required to report certain data about their venture capital investments in the prior calendar year. In particular, Covered Entities will need to disclose demographic data about the “founding team members” of all businesses in which they made venture capital investments during the prior calendar year (the “Founding Team Members”). This demographic data is required to be obtained through a survey that must be provided to each Founding Team Member by the Covered Entities.
The new investment disclosures are required under California’s recently enacted Fair Investment Practices by Venture Capital Companies Law (the “FIPVCC”).[1] According to the DFPI, the FIPVCC was adopted to provide transparency for greater equity and economic empowerment in venture capital investment to benefit the public with expanded business opportunity and innovation. While the FIPVCC requires a California nexus for a venture capital entity to be a “Covered Entity,” the nexus tests are broad. They include, among other triggers, making investments in businesses located in or with significant operations in California, or soliciting investors who are residents of California.
The DFPI has a website with information about the FIPVCC and its requirements here. The following is an overview of certain key provisions of the FIPVCC.
Which Venture Capital Entities Must Register Under the FIPVCC?
The FIPVCC only applies to entities that meet the definition of “venture capital company” under Title 10 of the California Code of Regulations (“CCR10”), as set forth in Section 260.204.9, subdivision (a)(4) (a “Venture Capital Company”), that also meet certain other California nexus requirements. To be a Venture Capital Company, an entity must satisfy one or more of the following requirements:
- 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 the entity’s assets (other than short-term investments pending long-term commitment or distribution to investors), valued at cost, are “venture capital investments”[2] or “derivative instruments”[3]; or
- The entity is a “venture capital fund”; [4] or
- The entity is a “venture capital operating company.”[5]
If an entity is a Venture Capital Company, it will be required to comply with the FIPVCC only if it also:
- Primarily engages in the business of investing in, or providing financing to, startup, early-stage or emerging growth companies; and
- Meets any one of the following California nexus criteria:
- Is headquartered in California;
- Has a significant presence or operational office in California;[6]
- Makes venture capital investments in businesses that are located in, or have significant operations in, California;[7] or
- Solicits or receives investments from a resident of California.
If an entity meets the above criteria, it is a “Covered Entity” and will be required to file reports under the FIPVCC. If an entity does not meet the above criteria, it would not be a Covered Entity and would not be subject to reporting under the FIPVCC.
What Information Must be Provided to DFPI by Covered Entities?
Commencing March 1, 2026, a Covered Entity must submit the following information to DFPI (the “Initial Report”):
- Name of the Covered Entity;
- Name, title and email address of the person who serves as the designated point of contact for the Covered Entity; and
- Designated email address, telephone number, physical address and website of the Covered Entity.[8]
In addition, by April 1, 2026, and annually thereafter, a Covered Entity must report to DFPI the following information about its funding determinations (a “Demographic Report”), in a format specified by DFPI (available here):
- At an aggregated level, all of the following information for the Founding Team Members[9] of all businesses in which the Covered Entity made a venture capital investment in the prior calendar year, to the extent the information was provided by the Survey (defined below) required to be requested from the Founding Team Members by the Covered Entity:
- The gender identity of each Founding Team Member, including nonbinary and gender-fluid identities;
- The race of each Founding Team Member;
- The ethnicity of each Founding Team Member;
- The disability status of each Founding Team Member;
- Whether any Founding Team Member identifies as LGBTQ+;
- Whether any Founding Team Member is a veteran or a disabled veteran;
- Whether any Founding Team Member is a resident of California; and
- Whether any Founding Team Member declined to provide any of the information described above.
- The number of venture capital investments to businesses primarily founded by diverse Founding Team Members during the prior calendar year, as a percentage of the total number of venture capital investments that the Covered Entity made, in the aggregate and broken down into the categories described above. The information presented for this item is to be anonymized to the extent possible.
- The total amount of venture capital investments to businesses primarily founded by diverse Founding Team Members during the calendar year, as a percentage of venture capital investments made by the Covered Entity, in the aggregate and broken down in the categories described above.
- The total amount of money in venture capital investments the Covered Entity invested in each business during the prior calendar year.
- The principal place of business of each company in which the Covered Entity made a venture capital investment during the prior calendar year.
When Must Reports be Made by Covered Entities?
An Initial Report (as described in “What Information Must be Provided to DFPI by Covered Entities” above), must be submitted by Covered Entities to DFPI by March 1, 2026. The information included in this Initial Report must be updated annually when the Covered Entity submits its Demographic Report.
On April 1, 2026, and annually thereafter, Covered Entities must also file a Demographic Report with the information described above.
How Do Covered Entities Collect the Information Required to be Disclosed about the Operating Companies in Which They Have Invested?
The FIPVCC requires that Covered Entities obtain the information mandated to be disclosed in the Demographic Report by providing each Founding Team Member with an opportunity to participate in a survey for the purpose of collecting the information (the “Survey”). The Covered Entity cannot provide the Survey to a Founding Team Member until after the Covered Entity has executed an investment agreement with the business and made the first transfer of funds. The form of the Survey has been prepared by DFPI (found here) and includes a “decline to state” option for each question.
When providing the Survey to the Founding Team Members, Covered Entities cannot incentivize, encourage or attempt to influence the decision of a Founding Team Member to participate in the Survey and must include a written disclosure that states the following:
- The Founding Team Member’s decision to disclose their demographic information is voluntary;
- No adverse action will be taken against the Founding Team Member if they decline to participate in the Survey; and
- The aggregate data collected for each demographic category will be reported to the DFPI.
When gathering information as part of the Survey, Covered Entities must collect and report Survey response data from Founding Team Members in a manner that does not associate the Survey with an individual Founding Team Member.
Will Information Included in Demographic Reports be Accessible to the Public?
Yes. The DFPI will make the Demographic Reports readily accessible, easily searchable and easily downloadable on its website. At present, there does not appear to be a process to avoid public disclosures.
Who Do I Contact if I Have Questions About the FIPVCC?
Eileen Duffy Robinett and Jennifer Post in Thompson Coburn’s Los Angeles office prepared this summary of the Fair Investment Practices by Venture Capital Companies Law. Eileen Duffy Robinett can be reached at erobinett@thompsoncoburn.com or (310) 282-2545, and Jennifer Post can be reached at jpost@thompsoncoburn.com or (310) 282-2512.
[1] See California Senate Bill 54 (2023), as amended by California Senate Bill 164 (2024), and Sections 27500 through 27506 of the California Corporations Code (“CCC”).
[2] A “venture capital investment” is defined in Section 260.204.9, subdivision (a)(5) of CCR10 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 has or obtains “management rights.” “Management rights” are the right obtained contractually or through ownership of securities 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. See Section 260.204.9, subdivision (a)(7) of CCR10. An “operating company” is an entity that is primarily engaged in the production or sale of a product or service other than the management or investment of capital (excluding individuals or sole proprietorships). See Section 260.204.9, subdivision (a)(8) of CCR10.
[3] A “derivative instrument” is defined in Section 260.204.9, subdivision (a)(6) of CCR10 as an acquisition of securities by a Venture Capital Company in the ordinary course of its business in exchange for an existing venture capital investment either (i) upon the exercise or conversion of the existing venture capital investment or (ii) in connection with a public offering of securities or the merger or reorganization of the operating company to which the existing venture capital investment relates.
[4] A “venture capital fund” is an entity that meets the definition of “venture capital fund” in Rule 203(l)-1 under the Investment Advisers Act of 1940, as amended. Generally, this requires that the entity invest in early-stage companies, hold limited non-qualifying assets, limit leverage and prohibit investor redemptions.
[5] A “venture capital operating company” is an entity that meets the definition of “venture capital operating company” in Rule 2510.3-101(d) adopted by the U.S. Department of Labor under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Generally, this requires that the entity during the applicable valuation period have at least 50% of its assets (other than short-term investments pending long-term commitment or distribution to investors), valued at cost, that are invested in venture capital investments or derivate investments (as defined under related ERISA rules) and during the applicable period actually exercises management rights with respect to one or more operating companies in which it has investments.
[6] Note that “significant presence” and “operational office” are not defined under the FIPVCC.
[7] Note that “significant operations” are not defined under the FIPVCC.
[8] See CCC Section 27501(a)(1).
[9] Under CCC 27500(e), a “Founding Team Member” means a person who: (i) satisfies all of the following conditions: (A) owned initial shares or similar ownership interests; (B) contributed to the concept of, research for, development of, or work performed by the business before initial shares were issued; and (C) was not a passive investor in the business; or (ii) has been designated as the Chief Executive Officer or president.
