California’s Governor signed Senate Bill (SB) 54, which requires a venture capital company to report annually to the California Civil Rights Department (CRD) on its funding determinations related to companies primarily founded by diverse founding team members.

Under the law, a venture capital company is covered by the requirements if it meets either of the following criteria:

• Primarily engages in the business of investing in, or providing financing to, startup, early-stage, or emerging growth companies.
• Manages assets on behalf of third-party investors, including, but not limited to, investments made on behalf of a state or local retirement or pension system.

And 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 resident of California.

Under the new law, covered venture capital companies will be required to report to the CRD on an annual basis starting March 1, 2025, regarding the makeup of founding teams and businesses to which funding is provided by the company.

The statute provides for enforcement by the CRD.