California recently enacted the California Fair Investment Practices by Venture Capital Companies law, codified at Cal. Corp. Code §§ 27500–27506 (“FIPA”). The new statute imposes registration, survey, and reporting obligations on venture capital companies with a nexus to California, with compliance beginning March 1, 2026.
Covered entities must submit certain survey information to the California Department of Financial Protection and Innovation (the “DFPI”), including aggregated demographic data of founding teams for portfolio companies to which such venture capital company provided investment in the prior year. Reports will be made publicly available on the DFPI’s website.
Below is a summary of the key requirements. Please reach out to our attorneys at Stubbs, Alderton & Markiles, LLP (“SA&M”) with any questions regarding compliance with the new law.
“Covered Entity”
FIPA defines a “Covered Entity” as a “venture capital company,” which is an entity that satisfies at least one of the below criteria:
- 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 fifty percent (50%) of its assets (other than short-term investments pending long-term commitment or distribution to investors), valued at cost, are venture capital investments or derivative investments;
- “Venture capital investment” means 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.
- “Derivative investment” means 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.
- Qualifies as a “venture capital fund” under SEC Rule 203(l)-1; or
- Qualifies as a “venture capital operating company” under ERISA regulations.
The statute applies to a venture capital company that:
- Primarily invests in or finances startup, early-stage, or emerging growth companies; and
- Has a sufficient California nexus, including:
- Having headquarters in California;
- Maintaining a significant presence or operational office in California;
- Investing in businesses located in or with significant operations in California; or
- Soliciting or receiving investments from California residents.
Initial Registration (Due by March 1, 2026)
Starting March 1, 2026, Covered Entities must submit to the DFPI the following information:
- Name of the Covered Entity;
- Name, title, and email address of a designated contact person; and
- Designated email, telephone number, physical address, and website.
Please review the “Key Links” available here to access the VCC Registration Portal and provide the above information.
Annual Reporting (Due by April 1, 2026 and Annually Thereafter)
By April 1, 2026, and annually thereafter, Covered Entities must report on investments made by the Covered Entity over the prior calendar year.
Aggregated Demographic Data
Covered Entities must report aggregated demographic information for founding team members of funded companies, including:
- Gender identity (including nonbinary and gender-fluid identities);
- Race and ethnicity;
- LGBTQ+ identification;
- Disability status;
- Veteran status; and
- California residency.
The report must also include:
- The percentage and total number of investments in companies “primarily founded” by diverse founding team members (broken down by category, anonymized to the extent possible);
- The percentage and total dollar amount invested in such companies;
- The total amount invested in each portfolio company during the prior year; and
- Each portfolio company’s principal place of business.
A “diverse founding team member” includes those who self-identify 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.
Reports will be publicly accessible in searchable, downloadable form. A copy of the form of report, as provided by the DFPI, is available here.
Survey and Disclosure Mechanics
Covered Entities must collect demographic information from those portfolio companies into which such Covered Entities made an investment in the prior calendar year through a standardized survey form, which the DFPI has made available here. The survey, as provided, notes that participation by portfolio companies is voluntary and no adverse action will result from a portfolio company declining to provide the survey. A Covered Entity may rely on a report prepared by a controlling entity, provided it contains all required information.
Recordkeeping and Enforcement
Covered Entities must maintain records related to reporting compliance for at least five years after submitting each report. If a Covered Entity fails to submit the report by April 1 of any given year, the DFPI will notify the Covered Entity that such Covered Entity has 60 days in which to submit the report without penalty. However, if a Covered Entity fails to report following such cure period, the DFPI may pursue any remedies available to it pursuant to the statute, including monetary penalties.
Key Takeaways and Next Steps
Venture capital firms and other investment entities with California ties should:
- Assess whether they constitute a “Covered Entity” pursuant to the new law, including by evaluating the nature of investments made by the entity and whether California nexus exists;
- If such entity constitutes a “Covered Entity,” submit all required reporting information via the DFPI website, available here, by March 1, 2026;
- Distribute the required survey, available here, to all portfolio companies into which the Covered Entity made an investment in 2025, noting the voluntary nature of participation;
- Following receipt of responses from portfolio companies, prepare and submit the report on portfolio companies, available here, by April 1, 2026; and
- Prepare for public disclosure of aggregated investment and demographic data.
Given FIPA’s broad definitions and public reporting component, determining reporting requirements and complying with the statute as soon as possible is essential.
