Beyond California: VC firms nationwide prepare for upcoming reporting deadline

By March 1, 2026, venture capital firms with a nexus to California must register with the California Department of Financial Protection and Innovation (DFPI) and, by April 1, must report their 2025 venture capital investment activity, including aggregated demographic data about their portfolio companies’ founding teams. Failure to comply may result in penalties.

DFPI has prepared standardized forms for covered firms to use when collecting and reporting founder demographic data. The Venture Capital Data Demographic Survey and Venture Capital Demographic Data Report can be found on DFPI’s website.

California’s sweeping new venture capital diversity reporting law (VC reporting law) goes beyond firms located within the state. It will require periodic reporting from many venture capital funds that invest in portfolio companies based in California or that solicit or receive capital from one or more investors in California. The law was introduced by Section 21 of 2024’s SB 164.

Below, we address which venture capital firms are covered, reporting requirements, and next steps for covered firms.

What does it mean to have a nexus to California?

A venture capital firm will have a nexus to the state and be a “covered entity” subject to compliance with the VC reporting law if it meets all three criteria outlined below:

(1) It is a “venture capital company” (as defined in Section 260.204.9 of the California Code of Regulations), which generally means it is:

a. An entity that invests at least 50 percent of its assets in venture capital investments,

b. A “venture capital fund” (as defined under the Investment Advisers Act of 1940), or

c. A “venture capital operating company” (as defined under the Employee Retirement Income Security Act of 1974);

(2) It primarily engages in the business of investing in, or providing financing to, startup, early-stage, or emerging growth companies; and

(3) It meets any of the following criteria:

a. Is headquartered in California,

b. Has significant presence or an operational office in California,

c. Invests in portfolio companies that are based in or primarily operate in California, or

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

What information is a covered entity required to report?

Beginning in March 2026, covered entities will be required to register with DFPI by submitting certain identifying and contact information.

By April 2026, and annually thereafter, covered entities will be required to collect and report data about each covered portfolio company, generally including:

• Aggregated founder demographics: Aggregated demographic data for each member of the founding team, including their gender identity, race, ethnicity, disability status, whether any identify as LGBTQ+, veteran status, California residency, and the number of team members that declined to respond;
  
  
• The number of investments in diverse companies: The number of investments made in companies “primarily founded by diverse founding team members,” expressed as a percentage of the covered entity’s total investments for the year, provided in the aggregate and broken out by each of the demographic categories listed above;
  
  
• The dollar amount invested in diverse companies: The total dollar amount invested in businesses “primarily founded by diverse founding team members,” expressed as a percentage of the covered entity’s total venture investments for the year, provided in the aggregate and broken out by each of the demographic categories listed above; and
  
  
• The principal place of business: The principal place of business for each applicable portfolio company.

DFPI has published the Venture Capital Demographic Data Report on its website, which covered firms must use to report the aggregated demographic information for their portfolio company founders. Reported information will be based on the prior calendar year, meaning the first reports due in April 2026 will be based on investments made in 2025.

What portfolio companies fall within the scope of the VC reporting law?

The VC reporting law requires reporting for every “business” or “company” in which a covered entity made a “venture capital investment” during the prior calendar year, which includes any acquisition of securities by the covered entity in an operating company in which the covered entity has management rights.

Is there a prescribed method of collecting this information?

Yes. Demographic information must be collected using the Venture Capital Data Demographic Survey prepared by DFPI, which is available on DFPI’s website. The survey should be delivered only after the covered entity has executed the investment agreement and made the first transfer of funds. Pre investment collection is prohibited.

Covered entities must retain original, individual-level survey responses for five years and make them available to DFPI upon request.

Are founding teams required to provide the requested information?

No. Along with the survey, covered entities must provide a written disclosure to founding teams stating that (1) disclosure is voluntary, (2) no adverse action will result from non participation, and (3) that survey responses will be anonymized and reported only in the aggregate. As noted above, covered entities will be required to report the number of founders who declined to provide the requested information.

Who qualifies as a founding team member?

“Founding team member” for any entity refers to a person who either:

(1) Has been designated as the chief executive officer or president or

(2) Meets all of the following criteria:

a. The person owned initial shares or similar ownership interests of the business,

b. The person contributed to the concept of, research for, development of, or work performed by the business before initial shares were issued, and

c. The person was not a passive investor in the business.

Will the reported information be available to the public?

DFPI is required to publish an annual report on its website using the aggregated and anonymized data reported by covered entities. It may also publish aggregate results or information (e.g., statewide or sector-level analysis) and use any of the information collected to carry out its duties, including, without limitation, bringing civil actions.

What can firms do now to prepare?

All firms and investors with a possible nexus to California are encouraged to:

• Identify covered entities: Identify which entities within their organizations (including venture capital funds and other investment vehicles) would fall within the scope of the VC reporting law;
  
  
• Identify covered investments: Review investments made by covered entities in 2025 to determine which are “venture capital investments” under the VC reporting law;
  
  
• Develop compliance procedures:

• Develop procedures for gathering information from covered investments made during 2025 and onward,
  
  
• Prepare founder facing communications that explain the voluntary nature of the survey and the firm’s anonymization practices,
  
  
• Review side letters, fund offering documents, subscription materials, and privacy notices to align disclosures regarding data collection, handling, and reporting under the VC reporting law, and
  
  
• Establish procedures for recordkeeping and oversight of the sensitive data gathered pursuant to the VC reporting law; and

• Monitor for updates: Continue to watch for any interpretive guidance regarding the scope and application of the VC reporting law.

Are there penalties for failure to comply?

Any entity that fails to file the required report by April 1 of each year will be notified by DFPI and will have 60 calendar days following such notification to cure the failure to report without penalty. Thereafter, any entity that fails to abide may face penalties of up to $5,000 a day for non-compliance, subject to higher penalties for extreme cases of reckless or willful violations. However, DFPI has been directed to consider certain mitigating factors about the firm and the violation when assessing penalties.

Have questions?

If you have any questions about California’s new VC reporting law and related reporting requirements, please contact your DLA Piper relationship partner or any of the authors.