Venture capital firms should begin planning now for compliance to avoid monetary penalties or court action. California Governor Gavin Newsom signed Senate Bill No. 54 (SB 54) into law on October 8, 2023.

The bill is designed to increase transparency in the state’s venture capital industry, and signals California’s continued attention to diversity matters. However, the law takes a disclosure-focused approach instead of substantive, conduct-based requirements which were used in previous laws that were successfully challenged. SB 54 will require “covered entities” to annually (a) collect diversity statistics regarding the founding teams of their portfolio companies and (b) report these statistics to the California Civil Rights Department (CRD), who will in turn make the reports available to the public on the CRD website. The first report due on March 1, 2025 (with reports for subsequent years due annually thereafter) will disclose the required information for the 2024 calendar year.