California Startup-Diversity Law May Touch Private-Equity, Growth Investors

California’s new law to make venture-capital firms provide data on the gender and racial makeup of the startups they back could have a far wider reach, legal analysts say.

Lawyers say other types of money managers need to take notice—even those that aren’t venture investors and aren’t based in California.

On Oct. 8, California Gov. Gavin Newsom signed the Investing in Equity Act, designed to make venture-capital funds report annually on the race, ethnicity, gender identity and disability status of the founders of their portfolio companies, among other details.

The bill is the first in the nation to require this type of data from investment firms. California plans to publish the information, with some sensitive details omitted, and state authorities may also use it to investigate potential breaches of law.

State lawmakers’ intentions in writing the measure are clear: to level the playing field so that diverse startup founders get more venture-capital funding.

Women and minority founders typically get only a small portion of venture investments. Last year, Black and Latino startup founders received just 1% and 1.5% of U.S. venture-capital commitments, respectively, while women-founded businesses secured just 1.9%, according to a report from consulting firm McKinsey & Co.

State Sen. Nancy Skinner, a Democrat representing the East Bay who introduced the bill, said the measure will help “more women- and minority-owned startups access the venture-capital lifeline upon which entrepreneurs depend.”

For the full report, click here.https://www.wsj.com/articles/california-startup-diversity-law-may-touch-private-equity-growth-investors-cd9fa8bc