California’s Mandatory Diversity Reporting for VC Fund Managers Starts March 1, 2026

California’s Department of Financial Protection and Innovation (“DFPI”) has recently taken concrete steps toward implementing S.B. 164, the Fair Investment Practices by Venture Capital Companies Law (the “California Diversity Reporting Law”), the state's new diversity reporting law for VC firms. The agency published a landing page for the VCC Reporting Program, registration guidance, a sample founder survey, and the mandatory reporting form. The registration portal isn't open yet, but these materials show the program is moving forward in time for the March 1, 2026, compliance deadline.

What You Need to Know

• The reporting is not just for California-based VC firms. The new reporting requirements will impact all VC firms with a nexus to California, regardless of where the fund is formed or its principal place of business. 
• VC firms should start planning to determine which fund entities, special purpose vehicles, and co-investment vehicles need to register (see “Which VC Firms Are Covered by the New Rules?” below) and which portfolio companies received funding from and after January 1, 2025.
• Covered VC firms should circulate the DFPI survey to the founding team members of their 2025 portfolio companies, using survey collection tools as appropriate.
• Covered VC firms should continue to monitor the DFPI website for access to the VCC Registration Portal, which has not been opened as of the date of this alert. We are tracking developments and will update you when the registration portal opens.
• By March 1, 2026, each fund and other investment vehicle that is a “covered entity” must submit information to DFPI through the VCC Registration Portal (i.e., a covered entity’s name, email address, telephone number, physical address, and internet website, and contact information for a dedicated point of contact for the covered entity). Each fund/vehicle will need to designate a point of contact and provide contact information for that designated person.
• On or prior to April 1, 2026, each covered fund/vehicle must prepare and submit its Venture Capital Demographic Data Report, aggregating the collected demographic information it received from its survey, to DFPI. A sample report can be found on the DFPI site.

Which VC Firms Are Covered by the New Rules?

The California Diversity Reporting Law establishes a two-step process to determine if funds, co-investment vehicles, or other fund-related entities are covered by the new rules:

Step 1: In general, the California Diversity Reporting Law defines “venture capital company” as an entity that satisfies one or more of the conditions below:

• On at least one occasion during the annual period commencing with the date of its initial capitalization, and on at least one occasion during each annual period thereafter, at least 50% of its assets (other than short-term investments pending long-term commitment or distribution to investors), valued at cost, are venture capital investments[1] or derivative investments[2]; or
• The entity is a venture capital fund as defined under Securities and Exchange Commission Rule 203(l)-1 (17 C.F.R. § 275.203(l)-(1)); or
• The entity is a venture capital operating company as defined under Department of Labor Rule 2510.3-101(d) (29 C.F.R. § 2510.3-101(d)).

Step 2: If a VC firm determines that it is a “venture capital company” as defined in Step 1, it then must determine whether it meets the Primary Business Test and the CA Nexus Test (both as defined in the flowchart below). Note that for purposes of the CA Nexus Test, DFPI has yet to provide clarifying definitions for whether (1) the venture capital company has a significant presence or operational office in California or (2) the venture capital company makes venture capital investments in businesses that are located in, or have significant operations in, California. These definitions will be critical for determining whether an entity is covered, and we will continue to monitor for clarifications and analyze these definitions when available.

Determining Whether a VC Firm Is Required to Report 

Which Portfolio Companies Are Covered?

The reporting due on April 1, 2026, applies to all portfolio companies that received funding from the covered VC firm from and after January 1, 2025. The reporting is not limited to portfolio companies doing business in California—there is no exemption for non‑California or non-U.S. portfolio companies—covered VC firms should therefore distribute the survey to all 2025 portfolio companies in their portfolio.

Who Should VC Firms Send the Survey to?

The survey should be sent to the VC firm’s primary compliance contact at the portfolio company (e.g., the CEO, CFO, or CCO).  

What Happens if the Portfolio Companies Do Not Respond to the Survey?

Participation and completion of the survey by the portfolio company is voluntary, and DFPI indicates that no adverse action will be taken against a founding team member who declines to participate in the survey. Covered VCs should make good-faith efforts to submit required information in a timely manner. Where information is not readily available, DFPI has not specified whether resubmission or updates will be required; however, DFPI has signaled an understanding that implementation will take time and is likely to focus initially on education, guidance, and opportunities to cure where there is proactive communication and a demonstrable effort toward compliance.

What Type of Information Is Collected and Reported? 

Covered entities will be required to use DFPI’s survey form to collect anonymized demographic information from “founding team members” of 2025 portfolio companies.

A founding team member includes:

1. Any person who satisfies all of the following conditions:
1. The person owned initial (founders) shares or similar ownership interests of the portfolio company;
2. The person contributed to the concept of, research for, development of, or work performed by the portfolio company before initial shares were issued;
3. The person was not a passive investor in the business; or
2. An individual who has been designated as the chief executive officer or president of the business.

As currently published, the survey asks for demographic data including:

• Gender
• Race/Ethnicity
• LGBTQ+ identification status
• Disability status
• Veteran status
• California residency status

In addition to the demographic data captured by the survey, reports to DFPI must include fund-level metrics such as the number and dollar amount of investments in companies “primarily founded” by diverse founders and the principal place of business of the portfolio company. Again, the reporting applies to all 2025 portfolio companies, regardless of whether they are domiciled or doing business in California. 

What Is the Background on the California Diversity Reporting Law for VCs?

As discussed previously, the California Diversity Reporting Law is intended to highlight and address the lack of funding for companies owned by diverse owners. The California Diversity Reporting Law requires covered entities to annually report aggregated demographic information regarding the founding teams of portfolio companies in which they invested during the prior calendar year.

The California Diversity Reporting Law is broad in scope and can capture entities that are not otherwise subject to California state law reporting. One criteria for coverage under the law is whether a VCC solicits or receives investments from a California resident (which may be either an individual or an entity). VCCs will generally be subject to the California Diversity Reporting Law unless such companies intentionally exclude California residents from fundraising.

What Is DFPI’s Role and Current Posture?

The California Diversity Reporting Law places DFPI firmly in the driver’s seat as the regulator. As the registration deadline approaches, DFPI is responsible for:

• Establishing submission mechanics and reporting formats, which DFPI has started to roll out on the landing page;
• Collecting filing fees (at least $175 per annual report, subject to adjustment);
• Providing information on its plan for publishing reported data for public access, which has not yet been released; and
• Exercising enforcement authority for noncompliance, if needed.

While DFPI has not yet opened the submission portal or released detailed implementing guidance, the statute itself is operationally prescriptive, signaling that DFPI views this as a data-collection and transparency regime with supervisory teeth, not a symbolic disclosure exercise.

How Morrison Foerster Can Help

Morrison Foerster regularly advises venture capital sponsors and emerging managers on California regulatory requirements and is well positioned to help clients assess coverage, build compliant reporting processes, and navigate DFPI engagement and submissions as we approach the implementation date.

[1] “Venture capital investment” means an acquisition of securities in an operating company as to which the investment adviser, the entity advised by the investment adviser, or an affiliated person of either has or obtains management rights as defined in subsection (a)(7) of this rule. Cal. Code Regs. tit. 10 § 260.204.9(a)(5).

[2] “Derivative investment” means an acquisition of securities by a venture capital company in the ordinary course of its business in exchange for an existing venture capital investment either (i) upon the exercise or conversion of the existing venture capital investment or (ii) in connection with a public offering of securities or the merger or reorganization of the operating company to which the existing venture capital investment relates. Cal. Code Regs. tit. 10 § 260.204.9(a)(6).