Key Points

• California's Fair Investment Practices by Venture Capital Companies Law requires covered venture capital companies to register with the DFPI and submit annual reports on portfolio company founder demographics.
• Covered entities include venture capital companies headquartered in California, with significant California operations, investing in California businesses or receiving investments from California residents.
• Under the law, venture capital companies must collect voluntary demographic data from founding team members, including gender identity, race, ethnicity, disability status, LGBTQ+ identification and veteran status.

The California Fair Investment Practices by Venture Capital Companies Law (the FIPVCC) goes into effect on March 1, 2026. As outlined in a previous alert, the FIPVCC requires covered venture capital companies with a nexus to California (Covered Entities) to survey and report demographic data of the founders of the portfolio companies in which they invested in the prior calendar year.

Beginning March 1, Covered Entities must submit their contact information to the California Department of Financial Protection & Innovation (DFPI). The DFPI is currently developing a registration platform for Covered Entities, which will be made available prior to March 1. Venture capital companies should monitor the VCC Reporting Program website for further updates.

The DFPI has now made available the survey and report forms on its website. (The survey is used to collect anonymized, voluntary information from the founding team members of the businesses a Covered Entity invested in during the prior calendar year. The report is the documentation a Covered Entity submits to the DFPI with aggregated, anonymized data of demographic information voluntarily provided by founding team members through the surveys.) The first deadline for a Covered Entity to submit a report to the DFPI is April 1, 2026, and a report is due annually thereafter. Though survey and report forms are available on the DFPI website, the reporting process is still under development. It will be made available prior to the reporting deadline, though.

What is a Covered Entity?

According to the FIPVCC, a Covered Entity must be a venture capital company that satisfies one or more of the conditions below:

• 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[1] or derivative investments[2]
• The entity is a “venture capital fund” as defined in rule 203(l)-1 adopted by the Securities and Exchange Commission under the Investment Advisers Act of 1940
• The entity is a “venture capital operating company” as defined in rule 2510.3-101(d) adopted by the U.S. Department of Labor under the Employee Retirement Income Security Act of 1974

The venture capital company also must meet both of these requirements:

• Primarily engages in the “business of investing in, or providing financing to, startup, early-stage, or emerging growth companies,[3]”
• Meets a nexus to California under the FIPVCC provisions.

A venture capital company is considered to have a nexus to California under the FIPVCC if the company meets any of the following criteria:

• The company is headquartered in California.
• The company has a significant presence or operational office in California.
• The company makes venture capital investments in businesses that are located in, or have significant operations in, California.
• The company solicits or receives investments from a person who is a resident of California.

If a venture capital company does not meet any of the criteria listed above, then the venture capital company is not a Covered Entity and registration is not required.

How Can Covered Entities Prepare?

Venture capital firms should first prepare by determining if they are considered a Covered Entity under the FIPVCC.

If the firm is one, a Covered Entity should familiarize itself with the data it will need to provide to the DFPI.

For registration purposes, a Covered Entity should be prepared to submit to the DFPI the following information: (1) its name; (2) contact information of its point person; and (3) its email address, telephone number, physical address and internet website.

For the purposes of the survey and report, a Covered Entity will need to collect the following information about each founding team member of all of the businesses in which the Covered Entity made a venture capital investment in the prior calendar year: (1) gender identity; (2) race; (3) ethnicity; (4) disability status; (5) whether the founding team member identifies as LGBTQ+; (6) veteran status; (7) California residency; (8) whether the founding team member declined to provide any of the information described above.

A founding team member is a person who (A) owned initial shares or similar ownership interests of the business; contributed to the concept of, research for, development of, or work performed by the business before initial shares were issued; and was not a passive investor in the business or (B) has been designated as the chief executive officer or president.

The FIPVCC additionally requires a Covered Entity to disclose, on an annual basis for the prior year, the number of venture capital investments it made to businesses primarily founded by diverse founding team members, as a percentage of the total number of venture capital investments the venture capital firm made. The law defines “diverse founding team member” as a founding team member who self-identifies 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.

For more information, please contact Esther Lee at 646.601.7677 or estherlee@foxrothschild.com, or another member of our Emerging Companies & Venture Capital practice group.

This information is intended to inform firm clients and friends about legal developments, including the decisions of courts and administrative bodies. Nothing in this alert should be construed as legal advice or a legal opinion. Readers should not act upon the information contained in this alert without seeking the advice of legal counsel. Views expressed are those of the author(s) and not necessarily this law firm or its clients. Prior results do not guarantee a similar outcome.

[1] “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. “Management rights” means the right, obtained contractually or through ownership of securities, either through one person alone or in conjunction with one or more persons acting together or through an affiliated person, 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.

[2] “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.

[3] The FIPVCC does not define “startup, early-stage, or emerging growth companies” and the DFPI website does not offer guidance on what companies fall under those terms.