California Enacts Law Requiring VC Firms to Disclose Diversity Data in Investment Portfolios

Effective from March 1, 2025, the Senate Bill 54 (SB 54) mandates that venture capital firms annually report the diversity metrics of the founders they support, marking the United States’ first stride towards increased DEI in venture capital. 

 As a global data provider on People, Denominator recognizes the potential impact California’s legislation will have on the venture capital ecosystem.  

Once the law goes into effect, any venture capital firm operating in the state (that includes VC firms headquartered in California, have operations in the state, have invested in companies that operate in or are based in the state, or have received investments from California residents) must report, for example; the race of the people they back, as well as their disability status and whether they’re a member of the LGBTQ+ community. It notes that disclosing information is voluntary for founding teams and that they won’t be penalized for not answering. The bill also requires firms to collect and release their diversity data to the public. Those who fail to comply with the new law may face a penalty as decided by the courts. 

Nancy Skinner, who sponsored the bill, is enthusiastic about the potential impact of SB 54. Currently, the funding disparity for startups led by women, Black, or Latinx founders has never exceeded 5%, there is hope that this legislation could illuminate venture capital allocation practices. This is particularly relevant in California, which stands as one of the most significant venture capital markets worldwide. 

Empowering Marginalized Entrepreneurs 

Allison Byers, a tech policy advocate involved in the bill’s development, emphasized the importance of transparency in empowering women and people of color to make informed decisions about where to invest their time. The legislation aims to encourage funds to allocate more venture dollars to underrepresented groups, bridging the existing funding gaps. 

Looking ahead, there is a focus on promoting matching bills throughout the nation. Allison Byers notes ongoing discussions with leaders in other states and countries interested in enacting similar policies, reflecting a broader movement towards equitable venture capital practices. 

The recent and future bills represent a shift towards inclusivity in venture capital and perhaps the investment realm.  

Denominator, as a global diversity data provider, is committed to promoting transparency and accountability for increased insights and data-driven decisions. 

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