Last month, California’s Department of Financial Protection and Innovation (DFPI) released the VCC Demographic Data Survey to help venture capital firms comply with the state’s SB 164 legislation. Introduced as SB 54 in 2023, the legislation was amended by SB 164 in 2024 and requires firms to begin reporting by April 1, 2026.
Recent studies show that less than 3% of all venture capital dollars go to women and Black founders. SB 164 is designed to help increase diversity and equity in the space by increasing transparency and accountability around who receives venture funding. Under the legislation, venture capital firms will be required to report on the demographic data of the founding teams of companies they invest in.
The availability of the DFPI survey and report is an important step toward ensuring compliance. With the deadline on the horizon, here are key details investors should know and what they can expect to report on.
Timeline
- SB 54 was signed into law on October 8, 2023 with plans to go into effect on March 1, 2025
- In 2024, SB 54 was amended through SB 164:
- The amendment shifted enforcement responsibility from the California Civil Rights Department to the Department of Financial Protection and Innovation (DFPI)
- It also delayed the reporting deadline from March 1, 2025 to April 1, 2026
- On January 23, 2026, DFPI launched a new Venture Capital Company Reporting Program webpage with initial guidance on the registration and reporting framework.
Key Deadlines
- March 1, 2026: covered entities must register with DFPI, identifying themselves as covered entities
- April 1, 2026: deadline to file first annual diversity report (covering 2025 investments).
- DFPI may allow a ~60-day cure period after notice before penalties.
- Penalties can reach up to $5,000/day for non-compliance.
- Reports are due annually thereafter
Who Is Required to Report?
SB 164 applies to venture capital companies with venture capital investments making up at least 50% of their assets as well as firms that qualify as either a venture capital fund under the Investment Advisers Act of 1940 or a venture capital operating company under the Employee Retirement Income Security Act of 1974). SB 54 defines “covered entities” broadly enough that a wide range of private investment funds, including traditional private equity firms in addition to venture capital companies, may be subject to compliance. To be in scope for the SB 164, covered entities must meet two further criteria:
- The venture capital firm must primarily engage in financing to start-up, early-stage, or emerging growth companies or manage assets on behalf of third-party investors
- The venture capital firm must meet any of the following location criteria:
- Be headquartered in California
- Have a significant presence or operational office in California
- Make VC investments in businesses that are located in, or have significant operations in, California
- Solicit or receive investments from a person who is a resident of California
The legislation also defines a “founding team member” as either of the following:
- A person who owned initial shares or similar ownership interests in the business, was not a passive investor, or contributed to the concept, research, development, or early work of the business before initial shares were issues
- A person designated as the chief executive officer (CEO) or president of the business
Reporting Requirements for SB 164
Under SB 164, venture capital firms must report to the California Department for Financial Protection and Innovation (DFPI) on the demographics of the founding teams of the companies they invested in during the previous year. Portfolio companies will be asked to anonymously report aggregated demographic information on the gender, race, disability status, sexual orientation, and veteran status of their founding teams.
Firms must disclose how many investments were made to portfolio companies founded by diverse team members, the total amount of investment made to those companies, and the percentage of companies with diverse team members out of total investments.
Penalties for Non-Compliance
If reports are not filed with the DFPI within 60 days of the legislation’s effective date, firms face non-compliance penalties, projected to be up to $5000 per day. This penalty may be subject to the discretion of the DFPI. Disclosing this information is voluntary for founding teams, and they will not be penalized for not responding. Firms will have to note that in-scope companies opted out of reporting.
How Novata Supports Your SB 164 Strategy
Compliance with SB 164 will require firms to work closely with portfolio companies to collect the data needed to report. Novata is designed to help firms organize and aggregate the data points required for compliance once underlying data has been collected. Ready to report? Speak with an expert to learn how Novata can help streamline compliance with California’s regulations.
This article was originally published in 2024 and updated on February 6, 2026 to reflect the latest updates to the regulation.
