California's New Mandatory Venture Capital Company Diversity Reporting Requirements Go Live

California's mandatory venture capital diversity reporting program under the Fair Investment Practices by Venture Capital Companies Law is live – and the first filing deadline is fast approaching. By April 1, 2026, and annually thereafter, certain venture capital companies (VCCs) that have a nexus to California, including those that merely solicit investors in California, must 1) collect demographic and other diversity-related data about the founding team members in businesses in which the VCC invested during the prior calendar year and 2) report this information to California's Department of Financial Protection and Innovation (DFPI), which administers the program (VCC Reporting Requirements).

This Holland & Knight alert provides a high-level summary of these requirements and next steps for affected firms, along with links to the DFPI template forms that firms must use to collect and report this information.

Who Is Subject to the VCC Reporting Requirements?

Step 1: Is the Entity a "Venture Capital Company?"

For these purposes, a "venture capital company" is an entity that satisfies at least one of the following:

1. 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 percent of its assets (valued at cost, excluding short-term holdings) are "venture capital investments" or derivative investments.
2. The entity is a "venture capital fund" under the Investment Advisers Act of 1940.
3. The entity is a "venture capital operating company" under the Employee Retirement Income Security Act of 1974 (ERISA).¹

With respect to the first prong of the definition, "venture capital investments"² is defined broadly, potentially capturing a wide universe of investment vehicles that traditionally may not be considered a venture capital fund.

Step 2: Does the Venture Capital Company Meet the Nexus Test?

Any entity that meets the definition of "venture capital company" and also satisfies both of the below conditions is subject to the VCC Reporting Requirements (Covered VCC).

1. The venture capital company primarily engages in the business of investing in or providing financing to startup, early-stage or emerging growth companies.
2. The venture capital company meets any of the following criteria:

a. is headquartered in California

b. has a significant presence or operational office in California

c. makes venture capital investments in businesses that are located in or have significant operations in California

d. solicits or receives investments from a person who is a resident of California

Notably, the VCC Reporting Requirements apply regardless of whether a firm is formally registered or regulated under California law or the federal securities laws. The requirements broadly extend to companies that "solicit" investments from California residents, even if the company has no physical presence in the state. This broad reach could arguably capture any venture capital company that, for example, offers its interests through general solicitation in reliance on Rule 506(c) of Regulation D under the Securities Act of 1933.

How Is This Information Collected and Reported?

Covered VCCs are required to collect certain demographic information about the "founding team members" (e.g., owner, chief executive officer, president) of the businesses in which they invested during the prior calendar year. Covered VCCs must use the DFPI-created standardized survey form to collect this demographic information. A founding team member's decision to disclose the information is voluntary.

By April 1, 2026, and annually thereafter, each Covered VCC must file a standardized report with the DFPI that aggregates and anonymizes the information it has collected from the founding team members. Covered VCCs must create an account through the DFPI's online portal in order to file the report. Penalties for failure to file a required report under the VCC Reporting Requirements (after notice and 60 days to cure) include fines of up to $5,000 for each day during which the violation continues, cease and desist orders, and payment of the DFPI's attorney's fees and expenses.³

Next Steps

1. Determine Applicability. Asset managers and other investment firms should canvass their existing investment vehicles and assess whether any vehicle is a Covered VCC. As noted above, the VCC Reporting Requirements may apply even if the firm does not have a physical presence in California.
2. Open an Account. Covered VCCs should open an account through DFPI's online portal.
3. Collect Required Demographic Information. Each Covered VCC should use the DFPI survey form to request the demographic information from the founding team members of each business in which the Covered VCC invested during the prior calendar year.
4. File the Report. By April 1, 2026, and annually thereafter, each Covered VCC must file a standardized report in the portal that aggregates the information collected from the founding team members.

Many of the terms used in the VCC Reporting Requirements are not defined in the regulations; accordingly, the DFPI is expected to issue additional interpretive guidance. If you have questions about whether your firm is subject to the VCC Reporting Requirements or need assistance navigating these requirements, please contact the authors.

Notes

¹ See 10 Cal. Code Reg. Section 260.204.9(a)(4).

² "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 as defined in Cal. Code Reg. Section 260.204.9(a)(7). See 10 Cal. Code Reg. Section 260.204.9(a)(5).

³ See Cal. Corp. Code § 27504(a).

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.