California has a new diversity reporting requirement for venture capital firms.

If you manage a fund with any connection to California, whether through your portfolio, your investors, or your team, there's a good chance this applies to you. 

In this article we cover who what the SB 164 regulation is, who it applies to, what it requires firms to do, and how to prepare ahead of the reporting deadline.

A bit of background

The legislation has gone through several changes worth knowing about. It was originally introduced as Senate Bill 54 (SB 54) and signed into law in October 2023. In 2024, it was amended by SB 164, and moved enforcement responsibility to the California Department of Financial Protection and Innovation (DFPI).

The policy motivation behind the law is straightforward. In 2025, less than 1.5% of all venture capital dollars in the US went to women founders and in 2024 0.4% went to black founders. SB 164 doesn't mandate how capital gets deployed, but it does require firms to start measuring and disclosing it. The idea is that consistent, public data creates the accountability the industry has lacked.

Does your firm need to comply?

This is the first question most firms need to answer, and the scope is broader than many expect.

SB 164 applies to venture capital companies (meaning firms where VC investments make up at least 50% of assets, or firms that qualify as a venture capital fund under the Investment Advisers Act of 1940, or as a venture capital operating company under ERISA). It's also worth noting that the law's definition is broad enough to capture some traditional private equity firms, not just dedicated VC funds.

On top of the entity type test, a firm must primarily engage in financing start-up, early-stage, or emerging growth companies, or manage assets on behalf of third-party investors.

From there, at least one of the following location criteria must apply:

• The firm is headquartered in California
• The firm has a significant presence or operational office in the state
• The firm invests in businesses located in California, or with significant operations there
• The firm solicits or receives investment from a California resident

There's no minimum fund size and no AUM threshold. A fund based outside California still qualifies if it has California-based portfolio companies or California LPs. That last point catches a lot of firms off guard.

What the law requires

Once you've confirmed you're in scope, the compliance workflow has two parts.

Collecting demographic data from founding teams

When your firm makes a new equity investment, you're required to send the DFPI's standardized demographic survey to the company's founding team members. The survey asks about gender identity, race and ethnicity, disability status, veteran status, and sexual orientation.

Founding team members are not obliged to respond. Their participation is entirely voluntary, and they face no penalty for declining. Your firm's obligation, however, is not optional: you must send the survey and record the outcome, even when founders choose not to engage.

Submitting an annual report to the DFPI

Each year, firms must file a report with the DFPI that summarizes demographic data across all investments made during the prior year.

The DFPI will publish firm-level reports alongside aggregated industry data. Individual founder responses are kept anonymous, but firm submissions may be subject to public records requirements, so it's reasonable to expect your report could be publicly accessible.

The key dates

Two deadlines define the first compliance cycle:

1 March 2026 - Registration. Before you can file your first report, you need to register with the DFPI as a covered entity. The DFPI launched its Venture Capital Company Reporting Program in January 2026 and has published guidance on how to complete registration.

To be confirmed by DFPO- First annual report. This report covers investments made during 2025. After this first cycle, annual reports are due on the same date each year. Note - the origional deadlines as 1st April 2026, however this reporting deadline has been pushed back.

What happens if you miss the deadline?

Firms that don't file face penalties of up to $5,000 per day. 

The DFPI may allow a roughly 60-day cure period after giving formal notice before penalties begin. Founders who choose not to respond won't face any consequences. Firms are simply required to note in their report that certain companies declined to participate.

How Kara can help

While the reporting requirements themselves are straightforward, the operational side is less simple.

SB 164 requires venture firms to collect founder-level demographic data that is voluntary, self-reported, and handled in a way that prevents individual identification. That means firms need a process where responses are collected, anonymised, aggregated, and documented correctly.

Across a portfolio, this quickly becomes a workflow:

• Sending surveys to founders when investments are made
• Tracking responses and opt-outs
• Storing sensitive data in an anonymised structure
• Aggregating results for the DFPI report
• Maintaining documentation of the process
  
  

Handled manually, this can become time-consuming and difficult to manage consistently.

Kara is built to manage this workflow end-to-end.

With Kara, firms can:

• Send DFPI-aligned demographic surveys automatically when new investments are recorded
• Track responses across the portfolio in one place
• Store and aggregate responses securely and anonymously
• Generate DFPI-ready reporting outputs automatically
• Reuse the same data for LP or ESG reporting, avoiding duplicate requests to founders

Instead of building a separate process for SB 164, firms can integrate the workflow directly into their portfolio data infrastructure.

If you'd like to see how Kara supports SB 164 compliance, book a short demo with our reporting specialists today.

‍