Who Should Report

The Fair Investment Practices by Venture Capital Companies Law (FIPVCC), enacted by SB 54 (Stats. 2023, ch. 594) and amended by SB 164 (Stats. 2024, ch. 41), is codified under Corporations Code section 27500 et seq.

The California Department of Financial Protection and Innovation (DFPI) has announced that it plans to initiate rulemaking in response to comments by various stakeholders relating to the Fair Investment Practices by Venture Capital Companies Law (FIPVCC).

Implementation and enforcement of the FIPVCC will be suspended pending completion of the rulemaking and until final regulations are in place. DFPI will not require covered entities to submit further registrations or file reports by the April 1, 2026, deadline.

The DFPI will begin the rulemaking process later this year to craft statewide regulations for the law with the goal of promoting clarity, collaboration, and transparency. To maximize stakeholder engagement, the DFPI will seek input from venture capital companies, industry associations, founders, investors, and other relevant parties over the next few months before beginning formal rulemaking. The DFPI will notify registrants and subscribers when that occurs.

Who Must Register as a Covered Entity?

To determine if a venture capital company must register under the FIPVCC, an entity should assess whether it meets the definition of “Covered Entity.”

Step 1:  Does entity meet the definition of “venture capital company” in the FIPVCC?

Corporations Code section 27500(g): The FIPVCC defines venture capital company the same as California Code of Regulations, title 10, section 260.204.9, subdivision (a)(4):

(4) “Venture capital company” means an entity that satisfies one or more of the conditions below:

(A) on at least one occasion during the annual period commencing with the date of its initial capitalization, and on at least one occasion during each annual period thereafter, at least fifty percent (50%) of its assets (other than short-term investments pending long-term commitment or distribution to investors), valued at cost, are venture capital investments, as defined in subsection (a)(5) of this rule, or derivative investments, as defined in subsection (a)(6) of this rule; or

(B) the entity is a “venture capital fund” as defined in rule 203(l)-1 adopted by the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended (17 C.F.R. 275.203(l)-(1)); or

(C) the entity is a “venture capital operating company” as defined in rule 2510.3-101(d) adopted by the U.S. Department of Labor under the Employee Retirement Income Security Act of 1974 (29 C.F.R. § 2510.3-101(d)).

If the entity does not meet (A), (B) or (C) above, then the entity is not a Covered Entity and registration is not required.

OR

If the entity meets one or more of (A), (B) or (C ) above, then proceed to Step 2.

Step 2:
Does the venture capital company meet both of the following criteria:

1. primarily engages in the “business of investing in, or providing financing to, startup, early-stage, or emerging growth companies,” and
2. meets a nexus to California under the FIPVCC provisions?

Step 2a: Does the venture capital company primarily engage in the business of investing in, or providing financing to, startup, early-stage, or emerging growth companies?

Corporations Code section 27500(b)(1): The venture capital company primarily engages in the business of investing in, or providing financing to, startup, early-stage, or emerging growth companies.

If the answer to this question is yes, then proceed to Step 2b.

OR

If the answer to this question is no, then the venture capital company is not a Covered Entity and registration is not required.

Step 2b: Does the venture capital company have a nexus to California under the FIPVCC?

Corporations Code section 27500(b)(2): The venture capital company meets any of the following criteria:

(A) The venture capital company is headquartered in California.

(B) The venture capital company has a significant presence or operational office in California.

(C) The venture capital company makes venture capital investments in businesses that are located in, or have significant operations in, California.

(D) The venture capital company solicits or receives investments from a person who is a resident of California.

If the venture capital company does not meet any of (A) through (D) above, then the venture capital company is not a Covered Entity and registration is not required.

OR

If the venture capital company meets at least one of the criteria in (A) through (D) above, then the venture capital company meets the definition of Covered Entity and must register with the DFPI under the FIPVCC.