Dive Brief:
- California Gov. Gavin Newsom signed Senate Bill 54 into law Sunday in a move to push for more diversity-related disclosures from investment firms.
- SB 54 requires venture capital firms headquartered or operating significantly in the Golden State to annually report the number of diverse founders they invest in and disclose data about their race, sexual orientation, gender identity, disability and veteran status, in addition to the dollar amount given to them.
- Despite signing the bill, Newsom raised concerns regarding “problematic provisions and unrealistic timelines” mentioned in the bill and proposed amending the language before implementation.
Dive Insight:
The new legislation, backed by state Sen. Nancy Skinner, D-Berkeley, passed the California Senate with a vote of 32-8 in early September before making its way to Newsom’s desk for approval. The bill stands to be the first piece of legislation in the United States demanding such transparency measures in the investment landscape.
“With Governor Newsom’s signing of SB 54, California is extending its nation-leading efforts to expand equity by bringing transparency to venture capital investment decisions, with the goal of helping more women- and minority-owned startups access the VC lifeline upon which entrepreneurs depend,” Skinner said in a press release.
SB 54 applies to firms headquartered in California and those that have operations in the state or have invested in businesses located in or operating in the state, as well as firms that receive investments from California residents.
It also requires venture capital firms to compile and release diversity data to the public. Firms will gather data through a standardized survey that protects the individual privacy of its employees. This information will be anonymized and aggregated before being made accessible to the public. Reports can be viewed through the Civil Rights Department of the Business, Consumer Services and Housing Agency website.
The bill follows in the footsteps of other recent legislative measures undertaken by California to reduce existing inequities for minority groups, especially women of color, in the corporate space. Last year, California passed Senate Bill 1162, a pay transparency law that requires employers to disclose pay ranges in job postings to highlight wage disparities and improve pay equity.
Newsom supported the measures outlined in SB 54, stating in a release, “The bill resonates deeply with my commitment to advance equity and provide for greater economic empowerment of historically underrepresented communities.”
However, he said the bill’s language should be refined because it could “present barriers to successful implementation and enforcement,” a task he delegated to his administration as part of the 2024-2025 Governor’s Budget to “ensure this important policy to improve the diversity of venture capital investments can be implemented properly.”
The bill notes that disclosing demographic information will be deemed voluntary, and no “adverse action” will be taken against any founding team member who declines to participate in the survey. Covered venture capital firms that fail to file a report by the given deadline, however, may face a penalty that will be determined by the court.
SB 54 is slated to go into effect March 1, 2025.
