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New California law mandates diversity metric reporting for companies | GVS

California Set to Pass Landmark Legislation to Increase Diversity in Venture Capital

California is on the verge of passing a groundbreaking legislation that aims to address the lack of diversity in the venture capital industry. The bill, known as SB 54, recently passed the state Senate with an overwhelming vote of 32-8 and is now awaiting Governor Gavin Newsom’s signature.

The main objective of SB 54 is to increase transparency and accountability in venture capital firms operating in California. The bill requires these firms to report the diversity breakdown of the founders they fund, including information on gender, ethnicity, and race. Additionally, they must disclose the amount of funding provided to each founder.

Senator Nancy Skinner, the sponsor of the bill, expressed her optimism that Governor Newsom will sign it into law. She believes that the disclosure and transparency requirements will encourage venture capital firms to improve their investment practices.

The lack of diversity in venture capital has long been a concern, with less than 3% of all capital allocated to women and Black founders. SB 54 aims to address this issue by not only requiring firms to collect and release their diversity data but also by making it easier for the public to track where venture funding goes.

One of the key provisions of the bill is the establishment of an investigation process by the state’s Civil Rights Department for those who violate its terms. Firms that fail to report their diversity data may face penalties determined by the courts.

Allison Byers, a founder and tech activist who played a role in ideating and drafting SB 54, highlighted the success of similar legislation in California. She pointed to SB 826, which mandated gender parity on public corporate boards and resulted in an increase in the number of women board directors. Byers believes that SB 54 can have a similar impact on increasing funding for underrepresented founders.

However, not everyone is supportive of SB 54. The National Venture Capital Association (NVCA) and TechNet, two prominent industry organizations, wrote letters opposing the bill. They argue that the legislation is unnecessary and could have unintended consequences.

Despite the opposition, SB 54 represents a significant step forward in addressing the lack of diversity in venture capital. If signed into law, it will provide much-needed transparency and accountability in an industry that has traditionally been opaque in its allocation of funds.

The passage of SB 54 would also align with California’s history of pioneering legislation aimed at promoting diversity and inclusion. While some previous laws, such as SB 826, have faced legal challenges, they have had a tangible impact on increasing representation.

The dismal amount of funding allocated to women and Black founders is a pressing issue that needs to be addressed. SB 54 offers a promising solution by requiring venture capital firms to report their diversity data and potentially face penalties for non-compliance.

As the bill awaits Governor Newsom’s decision, all eyes are on California to see if it will become the first state in the country to take concrete steps towards increasing diversity in venture capital. If successful, SB 54 could serve as a model for other states and industries to follow, ultimately leading to a more inclusive and equitable business landscape.