Venture capital is a form of private equity financing provided to startups, early-stage and emerging companies with high growth potential. It’s no secret that venture capital rarely reaches companies owned or led by people of color or women. This continues to perpetuate wealth, leadership, and resource gaps that exist for historically marginalized groups. This month, California Governor Gavin Newsom took a giant step toward addressing this by signing SB 54 into law. This Bill requires venture capital companies (VCCs) to collect and report information to the California Civil Rights Department (CRD) about their funding determinations, including demographics on their founding teams of portfolio companies. Information VCCs are required to disclose includes data on gender, race, disability status, sexual orientation, and veteran status.
“VCCs will need to provide information on: (a) the number of investments in businesses primarily founded by diverse founding team members, (b) the total amount of investments to businesses primarily founded by diverse founding team members, (c) the total amount of money in investments the VCC invested in each business during the prior calendar year, and (d) the principle place of business of each company in which the VCC made an investment during the prior calendar year. VCCs will also need to retain records related to its compliance with the reporting obligations for at least four years after delivery of its reports and the CRD is entitled to examine such records to confirm compliance with the law.”
This mandate is the first step to understanding the process of VC funding and why so few funding opportunities reach companies owned and led by people of color and women. Dismantling “systemic racism” often feels like an ominous and ambiguous initiative. This law requires public disclosure from a historically-opaque industry and is an encouraging step toward creating more equity in venture capital. It may also serve as a model every organization can adopt to understand the landscape in their workforce and business model along with relevant challenges that exist for historically marginalized communities.
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