Executive Summary

California enacted the Fair Investment Practices by Venture Capital Companies Law (FIPVCC) as part of a broader policy initiative aimed at increasing transparency in venture capital and other investment patterns and improving public understanding of how capital is allocated among founders of different demographic backgrounds. The statute reflects a legislative judgment that venture capital markets, while largely private and relationship-driven, play a significant role in shaping economic opportunity within the state, particularly in the technology and life-sciences sectors that dominate California’s economy.

Background and Legislative Context

Rather than regulating investment outcomes directly, the California FIPVCC adopts a disclosure-based framework covering venture capital investors who must collect standardized demographic information from portfolio-company founding teams on a voluntary, anonymized basis and report aggregated results annually to the California Department of Financial Protection and  Innovation (DFPI). The DFPI is then required to publish the information, allowing policymakers, researchers, and the public to evaluate investment trends over time. This approach mirrors other California transparency regimes that rely on data visibility rather than prescriptive quotas or allocation mandates.

Although the statute is primarily directed at “venture capital” investors, its expansive definitional structure and California nexus provisions mean that many entities and asset managers that do not traditionally identify as venture capital sponsors may nevertheless fall within scope. In particular, an entity may qualify where it invests in operating companies and the investor or its affiliates (including an investment adviser or related fund vehicle) obtain management or governance rights, a concept defined broadly enough to include board or observer rights, contractual rights to provide strategic guidance or consultation, negative control or protective-provision veto rights over significant corporate actions, and similar forms of influence that permit meaningful participation in the company’s direction.

This breadth is especially relevant for private fund sponsors that rely on Management Rights Letters (“MRLs”) to satisfy the U.S. Department of Labor’s venture capital operating company (“VCOC”) requirements under the ERISA Plan Asset Regulation. Because qualification as a VCOC requires the acquisition and exercise of management rights with respect to portfolio companies, sponsors often use MRLs to evidence those rights, particularly where the fund does not hold a board seat. MRLs typically confer contractual rights to obtain information, consult with management, and otherwise influence company operations, and those rights may independently support a conclusion that the investor possesses the type of management or governance rights contemplated by the California regulatory definition incorporated into the FIPVCC framework. Accordingly, sponsors that historically viewed VCOC structuring as an ERISA-specific plan asset exercise should consider whether those same governance rights contribute to potential coverage under the California statute.

At the same time, the statute’s scope is not unlimited. Coverage ultimately requires satisfaction of the full statutory test, including that the entity primarily invests in or provides financing to startup, early-stage, or emerging growth companies. The practical effect is that the law may extend beyond traditional Silicon Valley venture funds to include certain growth-equity, opportunistic, or hybrid strategies that regularly obtain governance rights in developing companies, while still excluding investors whose activities are principally directed toward mature operating businesses or non-operating assets.

With the first registration and reporting deadlines arriving in March and April 2026, the law now moves from policy debate to operational compliance, requiring affected sponsors to integrate demographic survey timing, aggregation controls, and DFPI reporting into ordinary deal execution and annual compliance workflows.

I. Who Is covered?

“Covered Entity” are determined as part of a 3-step test. A firm is a “covered entity” if it meets all three of the following criteria:

1. It is a “venture capital company” under 10 CCR § 260.204.9, meaning:
   • (i) 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” [1] or “derivative investments” [2]
   • (ii) the entity is a “venture capital fund” as defined in rule 203(l)‑1 adopted by the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended; or
   • (iii) 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 ERISA, and
2. It primarily invests in or provides financing to startup, early-stage and/or emerging growth companies, and
3. It has a California nexus, meaning having any of the following:
   • (i) headquartered in California;
   • (ii) significant presence/operational office in California;
   • (iii) invests in businesses located in (or with significant operations in) California; or
   • (iv) solicits or receives investments from a California resident.

Practical takeaways:

• The nexus prongs are broad which allows out-of-state sponsors to be pulled in through California portfolio exposure or California investors.
• The definition of a “venture capital company” is very broad: investments in traditional operating companies may fall under the scope.

II. How broadly defined is a “Venture Capital Company” under the law?

The definition of a “venture capital company” is very broad: under the incorporated California regulatory definition. Under this definition an entity can qualify as a “venture capital company” if, among other pathways, ≥50% of assets (valued at cost, excluding certain short-term positions) are “venture capital investments” or derivative investments during the relevant annual periods. A “venture capital investment” hinges on the investor (or its adviser/affiliate) having or obtaining “management rights,” itself broadly defined to capture board rights, observer rights and other “substantial influence” rights or strategic guidance in any operating company depending on facts and documentation.  As a result, a wide group of entities may fall within the scope of the statute may fall within the scope of the statute if they obtain governance or advisory rights of any operating companies; it is not limited to just startup, early-stage, and/or emerging growth companies.

III. What must Covered Entities do and when?

1. Due March 1, 2026: DFPI Registration / Contact Submission

Commencing March 1, 2026, covered entities must submit specified identifying/contact information to DFPI, including:

• covered entity name,
• covered entity’s 'email/phone/address/website,
• designated point of contact (name/title/email).

Update obligation and cure period: If the information isn’t updated in the annual filing, DFPI must provide notice and a 60-day window to cure without penalty.

The covered entities have ongoing obligation to keep DFPI updated of any changes.

2. Due April 1, 2026: First Annual Report (for 2025 Investments)

By April 1, 2026 (and annually thereafter), covered entities must report specified information for venture capital investments made in the prior calendar year (i.e., first report covers 2025).

The report includes:

• Aggregated demographic data from a standardized survey for the members of the founding team [3] collected via the DFPI survey (to the extent provided), across seven categories covering gender identity, race, ethnicity, disability, LGBTQ+, veteran status, California residency, and, additionally, whether any founding team member decline to provide any such information (the survey is completely voluntary; there is no obligation to complete).
• Metrics on investments in businesses “primarily founded by diverse founding team members” (by number and by percentage, including category breakdowns).
• Investment-level items: the total amount invested in each portfolio company during the prior calendar year and the company’s principal place of business. Although the statute elsewhere requires that demographic information be collected, reported, and published in aggregated and anonymized form at the individual founder level, this anonymity requirement does not prohibit company-level disclosure of investment amounts or locations. Instead, the statutory framework distinguishes between (i) personally identifying demographic data, which must remain anonymized and aggregated, and (ii) transaction-level investment information, which may be reported on a per-company basis so long as the disclosure does not enable attribution of specific demographic characteristics to identifiable individuals.

In practice, this means covered entities report dollar amounts by portfolio company, while demographic characteristics are disclosed only in aggregate statistical groupings (for example, totals or percentages of investments in companies with diverse founding teams), thereby preserving founder anonymity while still enabling public analysis of capital allocation patterns.

3. Public posting: DFPI must make reports readily accessible and downloadable and may publish aggregates.