Gov. Gavin Newsom signs historic bill to increase diversity in venture capital landscape. The Bill is titled ‘Fair Investment Practices by Investment Advisers’.

California Governor Gavin Newsom recently signed Senate Bill 54 into law. This groundbreaking legislation, which goes into effect on March 1, 2025, mandates that VC firms in the state must annually report the diversity of the founders they support. California became the first U.S. state to introduce such a law, marking a pivotal moment in promoting diversity and transparency in venture capital.

Newsom wants VCs to Quantify Diversity Investments.

Once enacted, the law will impact all VC firms operating in California, including those headquartered in the state, firms with California-based operations, those that have invested in companies operating within the state, or firms receiving investments from California residents.

These firms must report on various diversity metrics, including the race, disability status, and LGBTQ+ status of the founders they support. Importantly, compliance with these reporting requirements is voluntary, and founding teams will not face penalties for non-disclosure. VC firms must also collect and release their diversity data to the public.

Economic Empowerment

In signing SB 54, Governor Newsom reaffirmed his commitment to advancing equity and empowering historically underrepresented communities. The legislation addresses the pressing need to enhance diversity within the VC landscape, where funding to startups led by women, Black founders, and Latinx founders has remained below 5% in any given year.

SB 54 is expected to provide transparency into the allocation of venture capital dollars, particularly in California, one of the largest markets for VC investments.

Reporting Inclusivity and Transparency

The introduction of SB 54 is a significant achievement for tech policy advocates and proponents of diversity in the VC sector.

The bill’s sponsor, Senator Nancy Skinner, emphasizes its potential to bring transparency to VC investment decisions and help women and minority-owned startups access vital venture capital funding. The legislation empowers individuals from underrepresented demographic groups to make informed investment decisions. It aims to shed light on funding disparities, revealing which funds support diverse founders and which do not.

Balancing Concerns

While SB 54 has received widespread support, it also faced criticism from industry organizations such as the National Venture Capital Association (NVCA) and TechNet. Concerns included potentially harming VC firms and releasing sensitive information to the state’s civil rights department. These organizations stressed their commitment to diversity within venture capital but advocated for reevaluating specific provisions.

What’s next?

The next goal for diversity advocates in venture capital is to promote similar legislation in other states and countries. Once enacted, the impact of SB 54 will be closely observed as a pioneering step towards a more inclusive and transparent venture capital landscape.

California’s SB 54 is a milestone in the ongoing effort to diversify the VC sector. It offers a blueprint for addressing the lack of diversity in startup funding, especially for women and underrepresented minority founders. As other regions consider similar policies, Startempire Wire will track and report the collective impact of the legislation.