California Fair Investment Practices by Venture Capital Companies Law

The California Fair Investment Practices by Venture Capital Companies Law (“FIPVCC”) was passed in 2023 and later amended in 2024. The initial registration and reporting deadlines under the FIPVCC are quickly approaching. Starting March 1, 2026, the operative provisions of FIPVCC go into effect. The FIPVCC requires a “Covered Entity” to register with the California Department of Financial Protection and Innovation (“DFPI”). Covered entities are a broad category that can capture funds managed by sponsors who do not consider themselves California venture capital investors. Determining whether an entity is a Covered Entity will often require a complex analysis.  

What is a Covered Entity? 

The FIPVCC imposes reporting obligations on certain “venture capital companies” (“VCCs”). The FIPVCC defines a VCC as being an entity that satisfies one or more of the conditions below:   

1. An entity that has, on at least one occasion during the annual period commencing with the date of its initial capitalization, and on at least one occasion during each annual period thereafter, at least 50% of its assets comprising “venture capital investments” (as discussed below); 
2. A “venture capital fund,” as defined in rule 203(l)-1 adopted by the Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940, as amended; or   
3. A “venture capital operating company,” as defined in rule 2510.3-101(d) adopted by the U.S. Department of Labor under the Employee Retirement Income Security Act of 1974.  

A “venture capital investment” is defined as “an acquisition of securities in an operating company as to which the investment adviser, the entity advised by the investment adviser, or an affiliated person of either has or obtains management rights.” 

“Management rights” is defined as “the right, obtained contractually or through ownership of securities, either through one person alone or in conjunction with one or more persons acting together or through an affiliated person, to substantially participate in, to substantially influence the conduct of, or to provide (or to offer to provide) significant guidance and counsel concerning, the management, operations or business objectives of the operating company in which the venture capital investment is made.” 

Since the definition of “management rights” is broad, determining what constitutes a “venture capital investment” will require careful analysis. Further, because this analysis occurs at the fund level, as opposed to the adviser level, an investment adviser will need to analyze each fund it advises to determine whether reporting is required. 

The reporting obligations under the FIPVCC apply to a subset of VCCs meeting two criteria:  

1. The VCC “primarily” engages in the business of investing in, or providing financing to, startup, early-stage or emerging growth companies; and  
2. The VCC has a California nexus. 

The law does not define the terms “startup,” “early-stage” or “emerging growth”. Therefore, there is no easy way to determine whether a particular fund meets the first criteria. We suggest that managers consider how they have described a fund’s investment strategies and holdings for offering purposes.  

A VCC is determined to have a California nexus if it meets any of the following criteria:  

1. Is headquartered in California; 
2. Has a significant presence or operational office in California; 
3. Makes venture capital investments in businesses that are located in, or have significant operations in, California; or 
4. Solicits or receives investments from a person who is a resident of California. 

The DFPI has not yet clarified what constitutes “significant presence,” “operational office,” or “significant operations”.  

Given the broad definition of Covered Entities, the registration and reporting provisions of the FIPVCC may apply to funds regardless of their strategy and location of operation (i.e., to funds operated outside of California). 

Important Deadlines 

Registration: Starting March 1, 2026, Covered Entities must register with the DFPI by submitting identifying and contact information through a registration portal. The registration portal is still under development; however, a link to it will be posted here: VCC Reporting Program – DFPI.  

Reporting: By April 1, 2026, and each year thereafter (with regard to the Covered Entity’s investments for the preceding calendar year), Covered Entities must:  

• Distribute a standardized, voluntary demographic survey to the “founding team members” of each portfolio company in which the Covered Entity made a “venture capital investment”.  A “founding team member” means a person who is either: (1) designated as the chief executive officer or president, or (2) satisfies all of the following conditions: (x) the person owned initial shares or similar ownership interests of the business; (y) the person contributed to the concept of, research for, development of, or work performed by the business before initial shares were issued; or (z) the person was not a passive investor in the business. A copy of the template DFPI survey can be found here: VCC Demographic Data Survey.  

• Submit an aggregated, anonymized annual report to the DFPI summarizing these survey results. Specifically, the required information includes such person’s (i) gender identity; (ii) race; (iii) ethnicity and (iv) disability status. In addition, the report must indicate whether any founding team member (w) identifies as LGBTQ+, (x) is a veteran or a disabled veteran, (y) is a resident of California or (z) declined to provide any of the preceding information. This annual report must include the aggregated demographic data, investment metrics related to diverse founding teams, total capital invested during the year, and the principal place of business of each portfolio company. A copy of the report can be found here: Annual Report.  

Each report submission to the DFPI is subject to a minimum fee of $175, which may be adjusted to reflect the DFPI’s administrative costs. The reports submitted by a Covered Entity will be posted and publicly available on the DFPI website.  

Compliance and Next Steps  

The gathering of the necessary information should begin promptly because noncompliance for more than 60 days may result in enforcement actions, including cease and desist order, recovery of costs and attorney’s fees and daily monetary penalties. Penalties may reach up to $5,000 per day, with higher penalties for reckless or knowingly violations as determined by the Commissioner of DFPI.  

A Covered Entity must preserve records related to its obligations for at least 5 years after it delivers each report. 

For any questions regarding the FIPVCC or any assistance with the FIPVCC requirements, please reach out to the authors or another member of the Rimon team.  

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon, P.C. or its affiliates.