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Under the new state regulation, venture capital firms operating in California were supposed to be regulated Demographic data About their investment companies, including the gender and race of the startup founders they back. But amid public criticism from some tech leaders, the California agency that administers the new requirements suspended it before a Wednesday deadline for companies to file their first disclosures.
“The California Department of Financial Protection and Innovation (DFPI) announced that it plans to begin rulemaking in response to various stakeholder comments regarding fair investment practices through the Venture Capital Firms Act,” the state agency said. to publish on its website in mid-March. “The implementation and enforcement of (the law) will be suspended until the rulemaking is completed and until final regulations are in place.”
California lawmakers first Pass The measure is due in 2023, and was signed into law shortly thereafter by Gov. Gavin Newsom. For decades, slim and People of color Only received Small share of total startup funding compared to their representation in the US population. Lawmakers expressed hope that greater public scrutiny of investment decisions would help strengthen that Greater justice On the market, including for people with disabilities, Retired militaryor LGBTQ+.
The law called for venture capital and some other investment companies to submit annual reports as of March 1 of last year on the general composition of the founding teams in which they invested and the amount of money they provided to various founders. The companies were intended to collect demographic data through a voluntary survey that was then anonymised. California authorities planned to post the recordings online. Lawmakers Modified The law was enacted in 2024 to delay reporting until April 1, 2026 and enable the state to impose daily fines for non-compliance.
California’s Department of Financial Protection and Innovation did not immediately respond to a request for comment on the authority it used to exceed the deadline set by lawmakers. Newsom’s office also did not immediately respond to a request for comment.
Funders focused on financing entrepreneurs from underrepresented backgrounds have supported the law. But the National Venture Capital Association, the leading technology investing trade group, Casual. The group said that collecting data voluntarily would inflate diversity statistics and that publishing inaccurate data could lead to unfair attacks on investors who are really trying to Addressing diversity issues. Over the past year, the Trump administration He withdrew funding and attacked Diversity, equity, and inclusion, or DEI, initiatives exist in both the public and private sectors, prompting many companies and organizations to… Undo them.
In February, the Venture Capital Association He wrote to Newsom It requested that the reporting deadline be postponed again because, in its view, the state had botched the process. California authorities did not publish the standardized questionnaire founders were supposed to fill out until early this year, and at that time, they had not provided a way for companies to register with regulators as required by law, according to the association. “This administrative timeline creates an environment ripe for error and threatens to produce the misleading and counterproductive data we have previously warned about,” association President and CEO Bobby Franklin wrote.
Last month, as the deadline for the first reports approached, some entrepreneurs and investors began complaining on social media about the survey efforts. “California’s latest is a requirement for venture investors to collect/report racial and gender statistics,” books Blake Scholl, founder and CEO of the startup-backed airline Supersonic boom. “I want to live in a world where merit is what matters, not the color of your skin or what’s between your legs.”