California has passed a law aiming to increase access to venture capital funding for women- and minority-owned startups. The law, Senate Bill 54, was sponsored by California State Senator Nancy Skinner, passed by the California State Assembly and State Senate, and signed on October 8 by California Governor Gavin Newsom. It requires venture capital firms to file annual reports on the diversity of the founders of companies in which they are investing, starting on March 1, 2025.
“Venture capital firms might not be aware that their rate of investment is so low,” Skinner said in a statement. “Hopefully, the transparency required by SB 54 will inspire these investors to do better.”
The bill cites a PitchBook report which found that only 2.1% of all VC funding went to startups founded by women. The same study found that only 2.6% of funding went to Black founders and 0.6% went to Hispanic founders. Despite this, 42% of startups were founded by women, according to a report from payroll solutions firm Gusto.
“California has landmark laws on pay inequity and the lack of diversity in both the workplace and the boardroom,” Skinner said. “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.”
The bill outlines reporting requirements and procedures to disclose the diversity of the companies receiving investments, including data collection through a standardized survey to ensure the reports are easily accessible, searchable and downloadable through the state’s Civil Rights Department.
“I am thrilled to witness the progress made in California with the implementation of SB 54,” said Allison Kelly, CEO of impact-focused venture capital firm ICA Fund, based in Oakland, California, in a statement. “By requiring venture capital firms to disclose demographics of who they fund, this bill marks a milestone in our collective journey toward a more equitable and inclusive entrepreneurial ecosystem.”
Many American venture capital firms are based in California, including Bay Area companies such as A16z, Accel, Sequoia Capital and Founders Fund. California-based public pension funds such as the California Public Employees’ Retirement System and the California State Teachers’ Retirement System are also significant investors in venture capital. According to valuation software company , roughly 40% of all venture capital funding in the U.S. went to companies based in California in the first quarter of 2023.
Tags: California, Gavin Newsom, Nancy Skenner, regulation, Regulations, Venture Capital