Gregg S. Bateman

Broad Application Extends Beyond California

As you may be aware, the registration deadline is rapidly approaching for California’s Fair Investment Practices by Venture Capital Companies Law (“FIPVCC”), which tasked the California Department of Financial Protection and Innovation (“DFPI”) with administering an annual reporting regime for certain Venture Capital Companies (“VCC”) with a California nexus.  As summarized below, the VCC reporting regime will require registration and annual surveying and reporting for covered firms.

Even if you do not currently operate in California, and even if you are not a pure-play VC firm, please review this information carefully and consider whether your firm may be covered.  The scope of California nexus and the definition of covered entity are quite broad and potentially pick up more firms than one might naturally intuit.  If your firm is covered, you will need to ensure timely compliance with the registration and reporting requirements.

The DFPI has launched a website for its VCC Reporting Program, which provides initial guidance on registration and reporting requirements, a PDF version of the demographic survey, and further information about the overall reporting framework. The VCC Registration Portal is not currently available on the website but is expected to become available to Covered Entities before the registration deadline of March 1, 2026. Covered Entities should monitor the website to see when the portal becomes available – you can register for updates from DFPI on the VCC reporting regime.

Covered Entities

To determine if a company must register under the FIPVCC, an entity should assess whether it meets the definitions of “Venture Capital Company” and “Covered Entity”.  The FIPVCC defines VCC the same as the California Code of Regulations, Title 10, section 260.204.9, subdivision (a)(4), which provides that a company is a VCC if any of the following criteria are met:

1. 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 fifty percent (50%) of its assets (other than short-term investments pending long-term commitment or distribution to investors), valued at cost, are venture capital investments, as defined in subsection (a)(5) of this rule, or derivative investments, as defined in subsection (a)(6) of this rule;¹ or
2. The entity is a “venture capital fund” as defined in rule 203(l)-1 adopted by the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended (17 C.F.R. 275.203 (l)-(1)); or
3. The entity is 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 (29 C.F.R. § 2510.3-101(d)).

Note that prong (1) is not limited to equity securities and involves merely a 50% test.

If the entity does not meet any of prongs (1), (2) or (3) above, then the entity is not a VCC and registration is not required.

If any of prongs (1), (2), or (3) is satisfied, then the VCC becomes a “Covered Entity” if it meets both of the following conditions:

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 nexus to California.

If the VCC does not meet both prongs, then it is not a Covered Entity and registration is not required.  Note, however, that the first prong picks up financing, in addition to direct investment, and that terms like “emerging growth companies” are not defined.  Additionally, the widest net by far is cast with the definition of nexus.

A nexus to California is established if any of the following criteria are met:

1. The VCC is headquartered in California;
2. The VCC has a significant presence or operational office in California;
3. The VCC makes venture capital investments in businesses located in, or with significant operations in, California; or
4. The VCC solicits or receives investments from a person who is a resident of California.

Prongs (3) and (4) of the nexus definition will pick up numerous VCCs with no physical or operational presence in California.  Note also that important terms like “significant presence” and “operational office” are not defined.²  In the absence of interpretative guidance, conservative interpretation is recommended.

Covered Entities Deadlines and Obligations

Covered Entities must register with the DFPI by March 1, 2026. In this first registration, entities must provide:

1. The name of the Covered Entity;
2. The name, title, and email address of the person who serves as the designated point of contact for the Covered Entity; and
3. The designated email address, telephone number, physical address, and internet website of the Covered Entity.

In addition to registering with the DFPI, Covered Entities must file an annual report by April 1, 2026, which contains aggregate anonymized demographic data obtained from surveys. Covered Entities will be required to submit this data to the DFPI by April 1 of each year, covering the prior calendar year’s investments.

Under the FIPVCC, Covered Entities are required to report aggregated demographic information for each founding team member³ of every business in which they have made a venture capital investment.  The report must include each individual’s (i) gender identity, (ii) race, (iii) ethnicity, and (iv) disability status.  Furthermore, the filing must indicate whether any founding team member (i) identifies as LGBTQ+, (ii) is a veteran or disabled veteran, (iii) resides in California, or (iv) chose not to disclose any of the foregoing information.  

In addition, annual reports must include the number of venture capital investments to businesses primarily founded by diverse founding team members⁴ – as a percentage of the total number of venture capital investments the Covered Entity made, in the aggregate, and broken down into the categories described above. Covered Entities must also include the total amount of money in venture capital investments the Covered Entity invested in each business during the prior calendar year and the principal place of business of each company in which the Covered Entity made a venture capital investment during the prior calendar year.

The DFPI is required to make submitted reports publicly accessible on its website in a searchable and downloadable format.  The DFPI may also utilize the reports to publish aggregated information.

Finally, beginning this year, Covered Entities must distribute a DFPI-provided standardized demographic survey to founding team members of businesses in which they invested during the prior calendar year. Surveys are voluntary and must include written disclosures that participation is optional and responses are anonymized. Surveys must not condition investment on participation or otherwise influence responses.

Each report submitted to the DFPI is subject to a minimum fee of $175, which may be adjusted to account for the DFPI’s administrative costs.  If a Covered Entity fails to file a report, DFPI must notify and provide a 60-day cure period.  Uncured noncompliance may lead to administrative action and civil penalties up to $5,000 per day, with higher penalties for knowing or reckless violations.

Covered Entities must update the DFPI regarding changes to their registration information on an ongoing basis. Covered Entities must preserve records supporting delivered reports for at least five years.

Please contact Jacob Comer or your usual Seward & Kissel attorney in the Investment Management Group if you have any questions regarding the VCC reporting regime.