Under California’s Fair Investment Practices by Venture Capital Companies Law, venture capital funds that have a nexus to California (and that meet other threshold conditions) are required to register and file annual reports with a branch of California’s government. The law applies to Israeli and other non-U.S. funds that have a nexus to California, as long as they meet its threshold requirements.
A fund has a California nexus if it meets at least one of the following criteria:
- It is headquartered in California.
- It has a significant presence or operational office in California.
- It makes venture capital investments in businesses that are located in, or have significant operations in, California.
- It solicits or receives investments from a person who is a resident of California.
Many Israeli funds will be covered under this law even if they do not maintain offices in California, particularly if they have California-based limited partners or invest in companies with California operations.
Critical Deadlines
March 1, 2026: Covered entities must register on DFPI’s portal.
April 1, 2026: First annual report is due, covering venture capital investments made during calendar year 2025. Annual reports must be filed by April 1 each year thereafter.
What Information Must Be Reported?
Annual reports must include aggregated and anonymized demographic information about the founding team members of all portfolio companies in which your fund made venture capital investments during the prior calendar year. This applies to all investments made during the reporting period, regardless of where the business is located or incorporated, including Israeli companies.
The required demographic data includes gender identity, race, ethnicity, disability status, LGBTQ+ identification, veteran status, California residency status, and whether any founding team member declined to provide information.
Additionally, the report must include: the number and dollar amount of investments made to businesses primarily founded by diverse founding team members (as a percentage of total investments, broken down by demographic category), the total amount invested in each business during the reporting period, and the principal place of business of each portfolio company. The report does not require disclosure of the identity of portfolio companies.
To collect this information, covered entities must provide each founding team member with a voluntary demographic survey using a standardized DFPI form after the closing of the investment, along with written notice that participation is voluntary and no adverse action will be taken if they decline to participate.
Public Availability
The DFPI is required to make the annual reports it receives readily accessible, easily searchable, and easily downloadable on the department’s internet website.
Penalties for Non-Compliance
Failure to file the annual report within a 60-day grace period after receiving written notice from the DFPI may result in penalties of up to $5,000 per day, with higher amounts for reckless or knowing violations. California courts are authorized to exercise jurisdiction over non-U.S. covered entities.
Recommended Steps
- Assess immediately whether your fund has a California nexus and meets the other tests for being a covered entity under the law.
- Prepare to register with the DFPI by March 1, 2026.
- Implement processes to collect demographic information from founding team members of portfolio companies after closing.
- Establish systems to track and aggregate required data for annual reporting.
We remain at your disposal for any questions or clarifications on the subject.
This update is for informational purposes only and does not constitute legal advice.
