With the California Fair Investment Practices by Venture Capital Companies Law (“FIPVCC”) coming into effect and compliance deadlines approaching for “Covered Entities” to register and report, Nelson Mullins’ Private Funds & Investment Management and Corporate teams are focused on supporting and addressing client concerns. In connection therewith, please find some common questions and their answers. Please contact your Private Funds & Investment Management and/or Corporate team member for guidance and practical steps you can take on operations, compliance and/or risk management as FIPVCC comes into effect. 

1) “We are a growth equity fund, not ‘VC.’ Are we covered?”

Maybe. Coverage does not turn solely on branding. If the vehicle meets the “venture capital company” definition (including the asset test and “management rights”) and primarily invests in startup/early-stage/emerging growth companies, then California nexus can trigger coverage.

2) “We’re headquartered in New York, but we invested in a San Francisco startup in 2025.”

Likely yes if the investing entity is a “venture capital company” and the sponsor is primarily engaged in early-stage/emerging growth investing. Investing in a California business (or one with significant operations in California) is an express nexus prong.

3) “We have no California deals, but we have one LP who is a California resident.”

That alone can be a nexus trigger (solicits or receives investments from a California resident), assuming the other elements are met.

4) “We invested via a co-invest SPV. Who is responsible for reporting: the main fund or the SPV?”

The statute is framed around the covered entity that made the venture capital investment. Structurally, you’ll want to evaluate whether the SPV itself qualifies as a “venture capital company,” whether it’s controlled and can be rolled into a controlling entity’s report, and how your organization aggregates reporting. The statute contemplates that a covered entity may satisfy requirements via a report prepared by a controlling business if it contains all required information.

5) “Do we have to survey founders before closing so we can report?”

No, and you should not. The law prohibits providing the survey/disclosure until after the investment agreement is executed and the first transfer of funds is made.

6) “Can we encourage founders to complete the survey so our report isn’t sparse?”

No. The law prohibits encouraging, incentivizing, or attempting to influence participation.

7) “What if founders decline to provide demographic information?”

That is expected and okay. DFPI’s survey includes “decline to state” options, and the reporting obligation is to report aggregated data to the extent provided (including tracking declines).

8) “Does a SAFE note or convertible note count as a ‘venture capital investment’?”

It can, depending on whether it’s an acquisition of securities in an operating company where the adviser/entity/affiliate has or obtains management rights. The definition focuses on “management rights,” not on the label “preferred equity” vs. “SAFE.” In other words, it’s possible that a SAFE or convertible note may not constitute a venture capital investment at issuance if it lacks management rights, but such security may become a “venture capital investment” upon conversion into preferred equity, to that extent that position carries management rights (which are broadly defined and include governance and/or veto rights).

9) “Do Follow-on rounds and pro rata count?”

Often yes if they are acquisitions of securities and fit within “venture capital investment” or “derivative investment” concepts (including securities received upon exercise/conversion or in connection with certain transactions).

10) “We only take an observer seat; no board seat. Are we still in ‘management rights’ territory?”

Potentially. “Management rights” is defined broadly to include rights to substantially participate in or influence conduct or provide significant guidance and counsel whether obtained contractually or through ownership. Whether an observer package rises to that level is a facts-and-documents question.

11) “Do we have to retain the underlying surveys?”

You must maintain records related to the report for at least five years. As a practical matter, sponsors should retain enough to support aggregation and to demonstrate anonymization controls without retaining unnecessary sensitive personal data.

12) “Is there a filing fee?”

Yes. DFPI is directed to charge fees to cover administration; the fee per report must be at least $175 and may be adjusted.

13) “What happens if we miss the deadline?”

DFPI must provide notice and a 60-day cure window to submit without penalty (for both updating registration info and for filing the report). After that, DFPI may pursue remedies, including penalties.

14) “Are the reports public?”

Yes. DFPI must make them accessible and downloadable, and it may publish aggregate results.

15) “What’s the maximum penalty exposure?”

The statute authorizes penalties generally up to $5,000 per day, with higher penalties possible for reckless violations (and other remedies like desist-and-refrain and cost orders).