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The Story: California’s new VC disclosure bill includes such broad legal language that attorneys believe it could be used to require compliance from more firms than just venture and more states than just California.

Last month, governor Gavin Newsom signed into law the Investing in Equity Act, which orders California-based VC firms to make public their data on the race, gender, ethnicity, and disability status of the founders in whom they invest. The law was believed to be solely for California-based venture firms, but after some digging into its details, legal analysts believe the bill’s reach could extend much wider than the Golden State alone.

The bill, which goes into effect in March of 2025, will take the data from firms and disclose it to the public, excluding certain sensitive details. State authorities may then use the data to determine whether any firms are potentially violating the law.

But the scope of the law, and which firms fall under its purview, is convoluted. In an interview with Chris Cumming of the Wall Street Journal, Catherine Skulan, a partner with law firm Ropes and Gray, says, “If you read [the law] closely, you’re left scratching your head a little,” she continues, “If you trace the definitions throughout the bill you will see it has a much broader scope than, potentially, it was intended to cover.”

According to the language of the bill, a firm does not have to be based in California to disclose data on its portfolio founders. If the firm merely invests in a California-based startup or takes money from a California-based LP, it could be required to disclose the race, gender, ethnicity, and disability status of those founders living in California.

It’s likely Governor Newsom will alter the bill after mentioning that it “contains problematic provisions and unrealistic timelines.” However, he has yet to clarify what specifically parts of the bill he is referring to.

Expert Take: Marcos Fernandez, managing partner at Fiat Ventures and partner at Fiat Growth, describes the vastness of the scope: “It’s pretty wide. It has three applications:

1. You’re either domiciled in California (your office is there).

2. You have investments in California, meaning you’ve invested in companies that are there.

3. Or you’ve taken on LP or investment into your fund from someone who is in the state of California.

And when you look across those three broad sectors, even if you’re not based in California, typically you’ll have either some sort of investment or investor in that region. And that has pretty big overarching jurisdiction on that.”

Fernandez believes the Investing in Equity Act is a “great first step,” but that a lack of diversity in venture will not improve without first a change in demographics of investment committee decision makers.

He says, “I’ll tell you something maybe a little bit more controversial. We’re really not going to see a big change until the make-up and composition of our allocators—the limited partners, the pension funds, foundations, high net worth individuals, family offices—until they’re governed on those same premises to be able to report which of the emerging managers they back are underrepresented.”

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