In a notable legislative move, California’s government has signed into law a bill aimed at supporting entrepreneurs from underrepresented backgrounds. This bill mandates certain venture capital firms to report demographic information about the founding teams of businesses they invested in the previous year.
The details of this new regulation indicate that a “covered entity” is required to accumulate certain demographic information from founding team members of businesses funded by it. This task will be executed using a standardized survey that incorporates a “decline to state” option for every question. For more comprehensive information, legal professionals can refer to the particulars of the bill at JD Supra.
Implications of this new law could be far-reaching for the venture capital sector. Venture funds will now have to ensure they are not only focused on finding promising start-ups to invest in, but also pay attention to the demographic composition of founding teams.
Lawyers advising venture capitalists should be cognizant of this change and advise their clients accordingly. Making sure their clients are compliant with this new regulation should be a priority to avoid potential legal issues in the future. The success of this measure in supporting underrepresented entrepreneurs will rely not only on the intent of the law but the rigour with which it’s enforced.
These legal steps taken by the state of California set a precedent that could influence similar decisions in other states across the US or even globally. However, the effectiveness of such a legislation in bringing about tangible transformation in the venture capital world remains to be seen and will likely be a subject of interest in the future.