Under a new state regulation, venture capital firms operating in California were required to submit demographics on their portfolio companies, including the gender and race of the startup founders they have backed. But facing public criticism from some tech leaders, the California agency that administers the new requirement suspended it just before Wednesday’s deadline for companies to make their first disclosures.
“The California Department of Financial Protection and Innovation (DFPI) announced its intention to adopt rules in response to comments from various stakeholders regarding the Fair Investment Practices by Venture Capital Firms Act,” the state agency said. job on its website in mid-March. “Implementation and application of the [law] will be suspended pending completion of rulemaking and until final regulations are in place.
California lawmakers first pass the measure in 2023, and it was signed into law shortly thereafter by Gov. Gavin Newsom. For decades, women And people of color only received a small part of the overall funding of startups compared to their representation in the American population. Lawmakers hoped that increased public control over investment decisions would help foster greater fairness on the market, including for people with disabilities, retired militaryOr LGBTQ+.
The law requires venture capitalists and certain other investment companies to file annual reports starting March 1 of last year on the overall makeup of the founding teams they invested in and the amount of money they provided to various founders. The companies were supposed to collect demographic data through a voluntary survey that was then anonymized. California authorities planned to publish the documents online. The legislators amended The law in 2024 will delay reporting until April 1, 2026 and allow the state to impose daily fines for non-compliance.
The California Department of Financial Protection and Innovation did not immediately respond to a request for comment on what authority it used to skirt the deadline set by lawmakers. Newsom’s office also did not immediately respond to a request for comment.
Financiers focused on funding entrepreneurs from underrepresented backgrounds had supported the law. But the National Venture Capital Association, the tech investment industry’s leading trade group, opposed it. The group argued that voluntary data collection would inflate diversity statistics and that publishing inaccurate data could lead to unfair attacks on investors who are genuinely trying to tackling diversity issues. Over the past year, the Trump administration financed and attacked diversity, equity and inclusion, or DEI, initiatives in the public and private sectors, leading many companies and organizations to stay away from them.
In February, the venture capital association wrote to Newsom asking that the reporting deadline be extended again because, he said, the state had botched the process. California authorities only released the standardized survey that the founders were supposed to fill out earlier this year, and at the time they still had not established 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 that we have previously warned against,” wrote the association’s president and CEO, Bobby Franklin.
Last month, as the deadline for the first reports approached, some entrepreneurs and investors began complaining on social media about the investigative efforts. “California’s latest mistake is requiring venture capitalists to collect/report racial and gender statistics” wrote Blake Scholl, founder and CEO of a venture-backed aviation startup Supersonic boom. “I want to live in a world where merit matters, not the color of your skin or what you have between your legs.”
Scholl added that “Boom will not support any of these requests.” He declined to comment further to WIRED.
Joe Lonsdale, a founder of Palantir and major investor in the company 8VC, job“In California this month, we are literally required, as a venture capital firm, to ask every one of our CEOs in a survey if they are gay. Meanwhile, today in Texas, the voting machine is type Y or N: “Ban gender nonsense in K-12?” “Ban Sharia law?”
California’s regulatory agency said in its recent notice that it would first seek input from investors, industry groups and founders before beginning a new rulemaking process later this year, which could take up to 12 months. Its objective is to “promote clarity, collaboration and transparency” of the law.
After the state suspended the app, Lonsdale responded to queer.”
8VC did not immediately respond to a request from WIRED to clarify what Lonsdale might have meant by the comment.
