2023 California Code › Business and Professions Code - BPC › DIVISION 8 - SPECIAL BUSINESS REGULATIONS › CHAPTER 40 - Fair Investment Practices by Investment Advisers › Section 22949.85.

22949.85. (a) For the purposes of this section, the following definitions apply:
(1) “Covered entity” means a venture capital company that meets both of the following criteria:
(A) The venture capital company meets either of the following criteria:
(i) The venture capital company primarily engages in the business of investing in, or providing financing to, startup, early-stage, or emerging growth companies.
(ii) The venture capital company manages assets on behalf of third-party investors, including, but not limited to, investments made on behalf of a state or local retirement or pension system.
(B) The venture capital company meets any of the following criteria:
(i) The venture capital company is headquartered in California.
(ii) The venture capital company has a significant presence or operational office in California.
(iii) The venture capital company makes venture capital investments in businesses that are located in, or have significant operations in, California.
(iv) The venture capital company solicits or receives investments from a person who is a resident of California.
(2) “Department” means the Civil Rights Department.
(3) “Diverse founding team member” means a founding team member who self-identifies as a woman, nonbinary, Black, African American, Hispanic, Latino-Latina, Asian, Pacific Islander, Native American, Native Hawaiian, Alaskan Native, disabled, veteran or disabled veteran, lesbian, gay, bisexual, transgender, or queer.
(4) “Founding team member” means either of the following:
(A) A person who satisfies all of the following conditions:
(i) The person owned initial shares or similar ownership interests of the business.
(ii) The person contributed to the concept of, research for, development of, or work performed by the business before initial shares were issued.
(iii) The person was not a passive investor in the business.
(B) A person who has been designated as the chief executive officer, president, chief financial officer, or manager of a business, or who has been designated with a role with a similar level of authority as any of those positions.
(5) “Investment adviser” has the same meaning as defined in Sections 25009 and 25009.1 of the Corporations Code.
(6) “Primarily founded by diverse founding team members” means a founding team for which more than one-half of the founding team members responded to the survey described in paragraph (2) of subdivision (b) and at least one-half of the founding team members are diverse founding team members.
(7) “Venture capital company” has the same meaning as defined in paragraph (4) of subdivision (a) of Section 260.204.9 of Title 10 of the California Code of Regulations.
(8) “Venture capital investment” has the same meaning as defined in paragraph (5) of subdivision (a) of Section 260.204.9 of Title 10 of the California Code of Regulations.
(b) (1) Commencing on March 1, 2025, and annually thereafter, a covered entity shall report to the department all of the following information about its funding determinations:
(A) At an aggregated level, all of the following information for the founding teams of all of the businesses in which the covered entity made a venture capital investment in the prior calendar year to the extent the information was provided pursuant to the survey described in paragraph (2):
(i) The gender identity of each member of the founding team, including nonbinary and gender-fluid identities.
(ii) The race of each member of the founding team.
(iii) The ethnicity of each member of the founding team.
(iv) The disability status of each member of the founding team.
(v) Whether any member of the founding team identifies as LGBTQ+.
(vi) Whether any member of the founding team is a veteran or a disabled veteran.
(vii) Whether any member of the founding team is a resident of California.
(viii) Whether any member of the founding team declined to provide any of the information described in clauses (i) to (vii), inclusive.
(B) (i) During the prior calendar year, the number of venture capital investments to businesses primarily founded by diverse founding team members, as a percentage of the total number of venture capital investments the covered entity made, in the aggregate and broken down into the categories described in clauses (i) to (vi), inclusive, of subparagraph (A).
(ii) The information provided pursuant to this subparagraph shall be anonymized.
(C) During the prior calendar year, the total amount of venture capital investments to businesses primarily founded by diverse founding team members, as a percentage of venture capital investments made by the covered entity, in the aggregate and broken down into the categories described in clauses (i) to (vi), inclusive, of subparagraph (A).
(D) The total amount of money in venture capital investments the covered entity invested in each business during the prior calendar year.
(E) The principal place of business of each company in which the covered entity made a venture capital investment during the prior calendar year.
(2) (A) A covered entity shall obtain the information required by paragraph (1) by providing each founding team member of a business that has received funding from a venture capital company to which the covered entity has acted as an investment adviser with an opportunity to participate in a survey for the purpose of collecting the information.
(B) The survey described in subparagraph (A) shall be provided pursuant to a standardized form specified by the department. The survey shall include a “decline to state” option for each question on the survey.
(C) A covered entity shall provide a written disclosure to each founding team member prior to, or concurrently with, the survey described in subparagraph (A) that states all of the following:
(i) The founding team member’s decision to disclose their demographic information is voluntary.
(ii) No adverse action will be taken against the founding team member if they decline to participate in the survey.
(iii) The aggregate data collected for each demographic category will be reported to the department.
(D) A covered entity shall not provide the survey described in subparagraph (A) and the disclosure described in subparagraph (C) to a founding team member until after the covered entity has executed an investment agreement with the business and made the first transfer of funds.
(E) Neither a covered entity nor the department shall in any way encourage, incentivize, or attempt to influence the decision of a founding team member to participate in the survey described in subparagraph (A).
(3) A covered entity required to conduct the survey described in subparagraph (A) of paragraph (2) shall do both of the following:
(A) Collect survey response data from the founding team members in a manner that does not associate the survey response data with an individual founding team member.
(B) Report the survey response data pursuant to paragraph (1) in a manner that does not associate the survey response data with an individual founding team member.
(c) A covered entity may satisfy the requirements of this section by providing a report prepared by a business that controls each venture capital company to which the covered entity acted as an investment adviser at any time during the prior calendar year if the report contains all of the information required by paragraph (1) of subdivision (b).
(d) (1) The department shall make the reports received pursuant to subdivision (b) readily accessible, easily searchable, and easily downloadable on the department’s internet website.
(2) The department may publish aggregate results or aggregate information based on the information received pursuant to this section.
(3) The department may use any information collected pursuant to this section in furtherance of its statutory duties, including, but not limited to, using the information in a civil action brought by the department under this chapter or other law.
(e) (1) A covered entity shall make and keep records related to its obligations under this section. All records related to a report delivered to the department pursuant to subdivision (b) shall be preserved for at least four years after the covered entity delivers the report.
(2) The department may examine the records of a covered entity to determine their compliance with this section.
(3) The department shall charge and collect fees from covered entities to cover the expenses incurred in the administration of this section, not to exceed the reasonable costs of that administration.
(f) If a covered entity fails to file a report required by subdivision (b) by March 1 of a given year, the department shall notify the covered entity that the covered entity must submit the report within 60 days of the notification.
(g) (1) If a covered entity has not submitted a report after the 60-day period described in subdivision (f) has elapsed, the department may file with a superior court an ex parte petition naming the covered entity as the respondent seeking an order providing all of the following relief:
(A) Compelling the respondent to comply with this section.
(B) Requiring the respondent to pay a penalty to the department sufficient to deter the respondent from failing to comply with this section, as determined by the court. In making this determination, the court shall consider all relevant factors, including, but not limited to, all of the following:
(i) The size of the respondent.
(ii) The number of assets under management of the respondent.
(iii) The nature of the failure to comply with this section.
(C) The department’s reasonable attorney’s fees and costs incurred in pursuing the action.
(D) Any other relief that the court deems appropriate.
(2) The department may bring the action described in paragraph (1) in either of the following:
(A) Any county in which the department has an office.
(B) The county of the respondent’s residence or principal place of business.
(3) In an action brought pursuant to this section, the superior court shall have jurisdiction to grant any of the relief described in paragraph (1).
(4) If the department’s petition fails to set forth good cause for relief, the court shall enter an order denying the petition.
(5) (A) If the department’s petition sets forth good cause for relief, the court shall issue an order to show cause to the respondent.
(B) The department shall serve the petition and the order to show cause on the respondent in any manner described in Section 12962 of the Government Code within 10 days of the issuance of the order.
(6) The respondent shall file a response to the petition and the order to show cause within 21 days of service.
(7) (A) The respondent may request a hearing on the petition and order to show cause as part of its response.
(B) The department may file a request for hearing within seven days of service of respondent’s response.
(C) The trial court may, on its own motion or upon request as described in subparagraph (A) or (B), conduct a hearing on the petition and order to show cause. If a hearing is held, the trial court shall conduct the hearing within 30 days of the filing of the respondent’s response, and shall enter an order granting or denying the petition within 30 days of the hearing.
(D) If no hearing is held, the trial court shall enter an order granting or denying the petition within 30 days of the filing of the respondent’s response or the expiration of the respondent’s 21-day time period to file a response, whichever is earlier, unless otherwise stipulated by the parties.
(8) The trial court may, on its own motion and for good cause, extend any time period described in paragraph (7) by 30 days.
(9) If the trial court grants the petition in whole or in part, the order shall set forth the manner and time period in which the respondent shall comply with this section.
(10) (A) The department shall serve on the respondent a copy of the court’s order granting or denying the petition in any manner described in Section 12962 of the Government Code within 10 days of issuance of the order.
(B) If the order grants the petition in whole or in part, the order shall become effective 10 days after it is served.
(C) If the order denies the petition, the order shall become effective on the date it is served.
(11) The order of the superior court shall be final and, except for this paragraph, not subject to review by appeal. A party aggrieved by the order, or any part of the order, may, within 15 days after the service of the order, serve and file in the appropriate court of appeal a petition for a writ of mandamus to compel the superior court to set aside or otherwise modify the order.
(h) Moneys collected pursuant to this section shall be deposited in the Civil Rights Enforcement and Litigation Fund established pursuant to Section 12907 of the Government Code. It is the intent of the Legislature that the moneys collected pursuant to this section be appropriated in the Budget Act to the department for administration of this section.
(Added by Stats. 2023, Ch. 594, Sec. 1. (SB 54) Effective January 1, 2024.)