California suspends enforcement of law requiring venture capitalists to report diversity data

Under a new government regulation, venture capital firms operating in California were required to provide demographic data on their portfolio companies, including the gender and race of the startup founders they back. But amid public criticism from some tech leaders, the California agency that administers the new requirements suspended it before a Wednesday deadline for companies to file their first disclosures.

“The California Department of Financial Protection and Innovation (DFPI) announced that it plans to begin rulemaking in response to various stakeholder comments regarding fair investment practices under the Venture Capital Firms Act,” the state agency posted on its website in mid-March. “Implementation and enforcement [law] It will be suspended until rulemaking is finalized and until final regulations are in place.

California lawmakers first passed the measure in 2023, and it was signed into law shortly thereafter by Gov. Gavin Newsom. For decades, women and people of color have received only a small share of total startup funding compared to their representation in the U.S. population. Lawmakers hope that greater public scrutiny of investment decisions will help promote greater fairness in the market, including for people with disabilities, retired military personnel or the LGBT community.

The law called for venture capital and some other investment companies to submit annual reports as of March 1 of last year on the general composition of the founding teams in which they invested and the amount of money they provided to various founders. The companies were intended to collect demographic data through a voluntary survey that was then anonymised. California authorities planned to post the recordings online. Lawmakers amended the law in 2024 to delay reporting until April 1, 2026, enabling the state to impose daily fines for noncompliance.

California’s Department of Financial Protection and Innovation did not immediately respond to a request for comment on the authority it used to exceed the deadline set by lawmakers. Newsom’s office also did not immediately respond to a request for comment.

Funders focused on financing entrepreneurs from underrepresented backgrounds have supported the law. But the National Venture Capital Association, the technology investing industry’s leading trade group, disagreed. The group said that collecting data voluntarily would inflate diversity statistics and that publishing inaccurate data could lead to unfair attacks on investors who are genuinely trying to address diversity issues. Over the past year, the Trump administration has withdrawn funding and attacked diversity, equity, and inclusion initiatives in both the public and private sectors, prompting many companies and organizations to withdraw from them.

In February, the Venture Capital Association wrote to Newsom asking that the reporting deadline be postponed again because, in its view, the state bungled the process. California authorities did not publish the standardized questionnaire founders were supposed to fill out until early this year, and at that time had not provided a way for companies to register with regulators as required by law, according to the association. “This administrative timeline creates an environment ripe for error and threatens to produce the misleading and counterproductive data we have previously warned about,” association President and CEO Bobby Franklin wrote.

Last month, as the deadline for the first reports approached, some entrepreneurs and investors began complaining on social media about the survey efforts. “California’s latest is a requirement for venture investors to collect/report racial and gender statistics,” wrote Blake Scholl, founder and CEO of venture-backed aerospace company Boom Supersonic. “I want to live in a world where merit is what matters, not the color of your skin or what’s between your legs.”