In 2026, a legislative change is unfolding in venture capital and, by extension, the mergers and acquisitions landscape. California’s Fair Investment Practices by Venture Capital Companies Law—originally enacted as SB 54 and later amended by SB 164—reporting requirements aimed to affect dealmaking across the state, and potentially imposes new nationwide.
Any venture capital firm that qualifies as a “covered entity” with a California connection, including a presence in the state or investment activity involving California-based companies, must register with the Department of Financial Protection and Innovation (DFPI) by March 2026.
Following registration, these firms are required to submit their first anonymized demographic report by April 1, 2026. The survey asks firms to report, in aggregate and anonymized form, demographic data on gender identity, race and ethnicity, disability status, LGBTQ+ status, veteran status, etc. Once submitted, the DFPI will make the data publicly accessible, creating a new layer of visibility into the composition of VC portfolios and, implicitly, the companies they support. However, on March 17, 2026, the DFPI announced that it would suspend implementation and enforcement of the law pending formal rulemaking, meaning the April 1, 2026 deadline is no longer operative in its original form. The DFPI cited ongoing interpretive uncertainty and feedback as reasons to pause before enforcement begins.
Because venture capital firms are generally exempt from the Investment Company Act of 1940 and face limited disclosure obligations to federal regulators, they typically do not provide standardized reporting of investment activity, resulting in a shortage of reliable, publicly verifiable industry data and a reliance on fragmented proprietary datasets. California holds nearly 50% of the world’s venture capital, and this mandate aims to fill a gap by creating the first publicly searchable dataset tying VC funding flows to founder demographics.
Investors and corporate acquirers increasingly consider environmental, social, and governance (ESG) factors, including diversity, as material to long‑term performance and risk. Transparency into these demographics gives acquirers data they did not previously have, allowing them to assess whether a target’s backing reflects inclusive practices or a lack thereof. In fact, a 2024 Deloitte survey found that 72% of organizations have walked away from acquisition opportunities due to concerns about a target’s ESG profile, signaling that social metrics are no longer peripheral but rather central to modern decision-making.
However, this law has received some backlash from industry critics. It has been argued that the law may unintentionally violate privacy laws in the United States and abroad. National Venture Capital Association (NVCA) correspondence with legislators specifically raises the risk that, if anonymization is ineffective, especially for small funds, sensitive founder information could be exposed. Early this year, Industry groups, including the NVCA, requested that the DFPI delay the initial compliance deadline to allow firms more time to implement the necessary data collection and reporting systems. Thus, leading to March 17, 2026, where the DFPI suspended enforcement pending rulemaking — providing the near-term relief the industry had sought.
Further, although the amended SB 164 narrows the definition of “covered entities,” unanswered questions remain about its scope. Legal analysts note that, because SB 164’s “covered entity” definition turns on venture capital investment activity and an open-ended California nexus requirement, firms that do not believe they have a California presence may nevertheless fall within the statute’s scope depending on their activities and connections to California. SB 164 may impose substantial compliance and administrative burdens, particularly under interpretations requiring entity-level registration and reporting for special purpose vehicles (SPVs), which are single-purpose investment entities formed for individual deals (as opposed to venture capital funds that pool capital into a diversified, long-term portfolio), thereby potentially multiplying filing costs and complexity for managers that frequently utilize SPVs in their investment strategies. Firms that miss the report after a 60‑day grace period face up to $5,000 per day in fines, with higher penalties for knowing violations, plus possible injunctive or investigative actions.
SB 164 marks a notable shift in California’s venture capital landscape by making founder demographics publicly accessible. The law introduces clear reporting obligations and potential penalties for non-compliance, which may create administrative burdens for some firms. At the same time, it provides investors, acquirers, and limited partners with standardized data to inform decision-making and due diligence. By establishing a baseline for transparency, SB 164 signals that demographic composition is now a measurable factor in evaluating portfolios, without mandating investment choices. Its long-term impact on funding patterns and deal flow remains to be seen, but the law clearly sets a new expectation for visibility and accountability in California’s VC ecosystem. SB 164’s immediate trajectory now runs through the DFPI’s formal rulemaking process. The agency has announced plans to draft regulations with the goal of promoting clarity, collaboration, and transparency, and will seek input from venture capital companies, industry associations, founders, and investors before formal rulemaking begins — a process that must be completed within one year of initiation. The DFPI has stated that its approach aims to ensure that the regulations adopted are clear, practical, and effective in achieving the objectives of the law. Its long-term impact on funding patterns and deal flow remains to be seen, but the law clearly sets a new expectation for visibility and accountability in California’s VC ecosystem. The rulemaking process will be the defining moment for how SB 164’s obligations are ultimately structured — and how durably that expectation takes hold.