On October 8, 2023, California Governor Gavin Newsom signed into law Senate Bill 54. This law mandates that venture capital firms report the diversity of the founding teams in their portfolio to California’s Department of Civil Rights (DCR) annually.
Why is Senate Bill 54 important?
This law is the first piece of U.S. legislation aimed at increasing diversity within the venture capital industry which historically has allocated only 5% of capital to startups led by women, Black founders, or Latinx founders in any given year (source).
When does Senate Bill 54 go into effect?
The first report is due March 1, 2025. This means firms will be required to report accurate diversity data on investments they made during the 2024 calendar year by the start of March. Firms who do not comply may face a penalty as decided by the courts.
Combine your firm’s diversity and portfolio KPI reporting processes with Visible.
Which VC firms does Senate Bill 54 apply to?
Senate Bill 54 applies to any VC that:
- Is headquartered in California.
- Has a significant presence or operational office in California.
- Makes venture capital investments in businesses that are located, or have significant operations, in California.
- Solicits or receives investments from a person who is a resident of California.
Related Resource: California Adopts New Law Requiring VC Companies to Collect Diversity Data From Portfolio Company Founders
What diversity information will be required?
VC firms will be required to ask portfolio company founding teams to report their race, ethnicity, disabilty status, and sexual orientation. (Read the full requirements outlined in Senate Bill 54) Firms are required to make founders aware that this information is voluntary and founding teams will not be penalized for not reporting this formation. The information must also be collected in an anonymous fashion so that responses cannot be traced back to a founding team member.
This information will be aggregated and reported to California’s Civil Rights Department (CDR) on an annual basis.
Related Resource: 5 Actionable Steps to Improve Diversity at Your VC Fund
Getting a head start on portfolio diversity reporting
It’s important to make sure your firm has the internal capabilities to collect the required information from your portfolio companies before Senate Bill 54 goes into effect.
Visible’s Request feature streamlines the way investors collect custom KPI’s and diversity information from their portfolio companies.
