Amended  IN  Assembly  June 28, 2023
Amended  IN  Senate  May 18, 2023
Amended  IN  Senate  April 27, 2023
Amended  IN  Senate  April 17, 2023
Amended  IN  Senate  April 10, 2023
Amended  IN  Senate  March 20, 2023
Amended  IN  Senate  March 16, 2023

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Senate Bill
No. 54

Introduced by Senator Skinner
(Coauthors: Senators Atkins, Bradford, and Min)

December 06, 2022

An act to add Chapter 40 (commencing with Section 22949.85) to Division 8 of the Business and Professions Code, relating to professions and vocations.


LEGISLATIVE COUNSEL'S DIGEST


SB 54, as amended, Skinner. Venture capital companies: reporting.
Existing law generally prohibits discrimination in the provision of privileges and services on the basis of sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, and immigration status. Existing law provides a cause of action against any person who denies, aids or incites a denial, or makes any discrimination or distinction on the bases listed, as specified, and permits the recovery of attorney’s fees. Existing law establishes the Civil Rights Department (department) and makes it responsible for, among other things, investigating and prosecuting complaints alleging a violation of these provisions.
This bill would, commencing on March 1, 2025, and annually thereafter, require a covered person, defined as a person who acts as an investment adviser to a venture capital company and meets any of specified criteria, to report to the department specified information about their funding determinations, including, at an aggregate level, specified demographic information for the founding teams of all of the businesses in which the covered person made a venture capital investment in the prior calendar year to the extent the information was provided pursuant to a survey the bill would require a covered person to provide to each founding team member of a business that has received funding from a venture capital company to which the covered person has acted as an investment adviser, as specified. The bill would require this information to be collected and reported in a manner that does not associate the survey response data with an individual founding team member, make that information confidential, and prohibit the department and the covered person from releasing that information under any circumstances, except as required by the bill’s provisions. The bill would require the department to charge and collect fees to administer these provisions, as specified. The bill would require the department to notify the covered person that the covered person must submit the report within 60 days of the notification, and require the department to charge and collect a penalty of $100,000 if the covered person has not submitted the report after those 60 days have elapsed, as specified. The bill would require moneys collected pursuant to these provisions to be deposited in the General Fund, and would express the intent of the Legislature that these moneys be appropriated in the Budget Act to the department for administration of these provisions. The bill would define various terms for these purposes.
Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.
This bill would make legislative findings to that effect.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Chapter 40 (commencing with Section 22949.85) is added to Division 8 of the Business and Professions Code, to read:
CHAPTER  40. Fair Investment Practices by Investment Advisers

22949.85.
 (a) For the purposes of this section, the following definitions apply:
(1) “Covered person” means a person that does both of the following:
(A) Acts as an investment adviser to a venture capital company.
(B) Meets any of the following criteria:
(i) Has a certificate from the Commissioner of Financial Protection and Innovation pursuant to Section 25231 of the Corporations Code.
(ii) Has filed an annual notice with the Commissioner of Financial Protection and Innovation pursuant to subdivision (b) of Section 25230.1 of the Corporations Code.
(iii) Is exempt from registration under the Investment Advisers Act of 1940 pursuant to subsection (l) of Section 80b-3 of Title 15 of the United States Code and has filed a report with the Commissioner of Financial Protection and Innovation pursuant to paragraph (2) of subdivision (b) of Section 260.204.9 of Title 10 of the California Code of Regulations.
(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 person 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 person 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.

(vii)

(viii) Whether any member of the founding team declined to provide any of the information described in clauses (i) to (vi), (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 person 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 person, in the aggregate and broken down into the categories described in clauses (i) to (vi), inclusive, of subparagraph (A).
(2) (A) A covered person 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 person 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 person 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 person 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 person has executed an investment agreement with the business and made the first transfer of funds.
(E) Neither a covered person 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 person 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 person 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 person 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) The department shall make the reports received pursuant to subdivision (b) readily accessible, easily searchable, and easily downloadable on the department’s internet website.
(e) Except as required by this section, the information collected pursuant to this section is confidential and shall not be released by the department or a covered person under any circumstances.
(f) (1) A covered person 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 person delivers the report.
(2) The department may examine the records of a covered person to determine their compliance with this section.
(3) The department shall charge and collect fees from covered persons to cover the expenses incurred in the administration of this section, not to exceed the reasonable costs of that administration.
(g) If a covered person fails to file a report required by subdivision (b) by March 1 of a given year, the department shall notify the covered person that the covered person must submit the report within 60 days of the notification. If the covered person has not submitted the report after those 60 days have elapsed, the department shall charge and collect a penalty of one hundred thousand dollars ($100,000).
(h) Moneys collected pursuant to this section shall be deposited in the General Fund. 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.

SEC. 2.

 The Legislature finds and declares that Section 1 of this act, which adds Section 22949.85 to the Business and Professions Code, imposes a limitation on the public’s right of access to the meetings of public bodies or the writings of public officials and agencies within the meaning of Section 3 of Article I of the California Constitution. Pursuant to that constitutional provision, the Legislature makes the following findings to demonstrate the interest protected by this limitation and the need for protecting that interest:
In order to protect the privacy of individuals, it is necessary that this act limit the public’s right of access to that information.