California Takes A Stand For Diversity In Venture Capital With New Bill
California is working on passing SB 54, the nation’s first legislation to increase diversity in venture capital.
In California, venture capital investments do not reflect the state’s diversity, according to the bill.
It states that companies founded or co-founded by women receive far less investment funds than companies founded by men.
Additionally, companies founded or co-founded by people of color receive far fewer investment funds than companies founded or co-founded by white people.
Black founders have long faced challenges securing funding for their businesses, with VC funding dropping by 36% last year but falling by 45% for Black founders.
SB 54 Bill
The SB 54 bill aims to shed light on the current lack of diversity in the startup world and encourage investors to consider a broader range of founders.
It will require venture capital companies to submit an annual report on their investments to the Department of Financial Protection and Innovation.
The bill requires firms operating in California to report the diversity breakdown of the founders they fund to the state; this includes reporting founders’ gender, ethnic and racial background, and the money given to them.
SB 54 will also require firms to collect and release their diversity data to the public.
The bill passed the state Senate with a vote of 32-8 and is now with Governor Gavin Newsom’s desk, waiting for the final decision.
Senator Nancy Skinner, the bill’s sponsor, told TechCrunch she’s optimistic that Newsom will sign the bill.
“Venture capital firms might not be aware that their rate of investment is so low. So this disclosure, this transparency, hopefully, will nudge them to do better,” she said.
Firms that violate the bill’s terms will ultimately be investigated and may face a penalty if decided by the courts.
Why do we need the bill?
The author and sponsors of the bill believe that greater transparency will drive change to create more significant equity in investing.
Today’s Esquire claims that by publicizing this information, prospective founders will better understand which venture capital firms prioritize diversity and inclusion, leaving them to make more informed decisions when approaching them.
It can help policymakers and industry leaders target specific areas for improvement and develop programs addressing marginalized groups’ unique challenges.
However, 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.
