California's VC Diversity Reporting Law

California's new law requires venture capital firms with any significant connection to the state to collect and publicly report diversity data about their portfolio companies' founding teams starting in 2026, with significant penalties for non-compliance.

BUSINESS LAW

1/30/20252 min read

California Diversity Law
California Diversity Law

Big Changes Coming to VC Diversity Reporting in California

California's groundbreaking venture capital diversity reporting law just got a major update. Originally set to kick in during 2025, the deadline has been pushed back to 2026, giving firms more time to prepare. Here's what's happening and why it matters.

Who's Affected?

The law casts a surprisingly wide net. You don't even need to be based in California to be covered. If you're a VC firm that either:

  • Has an office in California

  • Invests in California businesses

  • Takes money from California residents

  • Is headquartered in California

...you'll need to comply.

What's Required?

Starting in 2025, VC firms will need to collect diversity data about the founding teams of companies they invest in. This includes information about:

  • Gender identity

  • Race and ethnicity

  • LGBTQ+ status

  • Veteran status

  • Disability status

The fun part?

Firms can't ask for this information until after they've invested. And they can't pressure founders to provide it - it's completely voluntary.

New Timeline:

  • March 1, 2026: First registration deadline with California's Department of Financial Protection and Innovation (DFPI)

  • April 1, 2026: First annual report due

The Tricky Part

Here's where it gets interesting. All this data will be public on the DFPI's website. That means anyone can see:

  • How much firms are investing overall

  • Where they're investing

  • The diversity breakdown of their portfolio founders

There's also a balancing act firms need to consider. While this law aims to promote diversity in VC funding, firms need to be careful about making investment decisions based explicitly on protected characteristics - that could raise other legal issues.

What Should Firms Do Now?

While waiting for more guidance from the DFPI in 2025, firms can:

  1. Figure out if they're covered by the law

  2. Plan how they'll collect and store this sensitive data

  3. Decide who'll handle the reporting

  4. Take a hard look at their current diversity numbers

  5. Think about how their investment criteria might look under public scrutiny

Missing a report?

Firms get a 60-day grace period, but after that, penalties can hit $5,000 per day. And that's just the start - penalties can go higher for knowing violations.

This law represents a major shift in VC transparency. While the delayed timeline gives firms more breathing room, it's clear that change is coming to the venture capital world. Smart firms will use this extra time to get ready.