California Doubles Down on Diversity Data: The New Era of DEI Transparency in Venture Capital

In October 2023, California enacted Senate Bill 54 (SB 54) to promote transparency in venture capital funding by requiring firms with a California nexus to report demographic data on the founding teams of their portfolio companies. In 2024, California enacted Senate Bill 164 (SB 164), which repealed SB 54 but reintroduced most of its substantive requirements with key amendments. Of note, the amended law extended the deadline for covered firms to report demographic data from March 1, 2025, to April 1, 2026. SB 164 reflects California’s effort to address disparities in venture capital funding for underrepresented founders—women, people of color, LGBTQ+ individuals, and others. 

Summary of Key Amendments

In addition to extending the reporting deadline, SB 164 shifts the oversight of compliance from the California Civil Rights Department to the Department of Financial Protection and Innovation (DFPI). The law’s application is narrowed to firms primarily engaged in financing startups or early-stage companies, excluding entities such as pension fund managers. The amendments also reframe the definition of “founding team member[s]” from whom demographic data must be obtained. Firms are also required to retain relevant data for at least five years, rather than four years as previously set forth in SB 54. 

Covered Entities Subject to SB 164

SB 164 applies to “covered entities” that meet all of the following criteria:

• They are a “venture capital company,” as defined in Section 260.204.9 of Title 10 of the California Code of Regulations (CCR), meaning that any of the following apply: (i) at least 50% of the firm’s assets are venture capital investments, as defined in the CCR; (ii) they are a “venture capital fund” under the U.S. Investment Advisers Act of 1940 or (iii) they are a “venture capital operating company” under the Employee Retirement Income Security Act of 1974.
• They are primarily engaged in the business of investing in or providing financing to startup, early-stage, or emerging growth companies; and
• They maintain a California nexus, meaning one of the following applies:
  • They are headquartered in California.
  • They have a significant presence or operational office in California.
  • They make venture capital investments in businesses that are located in, or have a significant operational presence in, California.
  • They solicit or receive investments from a California resident.

The law does not define “significant presence” or “operational office.” To date, no further guidance has been offered defining these terms. Thus, even firms that do not think they have a California nexus may fall under this law’s ambit.

Reporting Requirements and Deadlines

The DFPI is charged with governing compliance with SB 164. The DFPI will provide covered entities with anonymized surveys to distribute to “founding team members” of all businesses in which they have invested. A “founding team member” includes a CEO, president, or any individual who satisfies all the following requirements:

• Owned initial shares of the business.
• Contributed to the business concept, research, development, or work before initial shares were issued.
• Is not a passive investor. 

A founding team member’s participation in the survey is voluntary, and covered entities are prohibited from influencing responses. 

By March 1, 2026, covered entities are required to register with the DFPI, provide their names and designate a point of contact. Thereafter, by April 1, 2026 and annually thereafter, covered entities must report to the DFPI the following information relating to the preceding year:

• Aggregated demographic data relating to all of the founding team members, including gender identity (including nonbinary identities), race, ethnicity, disability, LGBTQ+ status, veteran or disabled veteran status, and California residency. The report must also identify if anyone declined to provide information in response to the anonymized surveys.
• The number and total amount of investments in businesses primarily founded by diverse founding team members as an aggregate percentage of the covered entity’s investments, broken down according to the demographic categories identified immediately above.
• The total amount invested in and principal place of business of each portfolio company. The DFPI will publish all reports on its website.

Given these timelines, covered entities should plan on distributing surveys to founding team members in early 2026. To ease collection efforts in the future, covered entities can consider collecting this information after completing investments in businesses. The data must be both collected and reported in a way that does not associate the data with an individual founding team member. Thus, covered entities must safeguard the data collected and reported. 

Fees and Penalties

The DFPI will assess a $175 filing fee for each firm’s report. The DFPI will also provide notice to covered entities that do not comply with this law and, prior to assessing any penalties, allow for a 60-day cure period. Failure to timely file a report after this cure period can lead to up to $5,000 of daily penalties, injunctive relief, and attorneys’ fees. 

California’s Approach Diverges from Federal Trends 

While California has expanded demographic reporting requirements for venture capital firms through SB 164, federal policy has moved in a different direction. In January 2025, the president issued Executive Orders 14151 and 14173, which revoked prior DEI-related executive actions, directed agencies to eliminate DEI offices and training, and prohibited federal contractors from maintaining programs that involve preferential treatment based on protected characteristics. These orders also introduced new compliance measures, including certification requirements for contractors affirming that they do not operate programs deemed inconsistent with federal anti-discrimination laws. Agencies were instructed to terminate equity-related grants and contracts and to modify procurement language to reflect merit-based principles.

There is a notable contrast between state and federal approaches. California’s SB 164 focuses on transparency rather than mandates: it requires venture capital firms with a California nexus to collect and report aggregated demographic data on founding team members of portfolio companies, including gender identity, race, ethnicity, LGBTQ+ status, disability, and veteran status. The law does not impose hiring quotas or investment targets, but public reporting is intended to highlight patterns of underinvestment in diverse founders and encourage firms to evaluate their investment practices. 

Legal challenges still remain possible. Similar state-level diversity initiatives—such as California’s board diversity laws—have faced constitutional challenges in recent years, and demographic reporting requirements may draw scrutiny under First Amendment and equal protection theories. 

Key Takeaways

While the deadlines imposed by SB 164 are still a few months away, covered entities should begin planning for necessary steps early in the new year, such as identifying all founding team members, appointing an internal team to manage compliance, distributing anonymized surveys, tracking collected data, and preparing aggregate data reports to be submitted to the DFPI.