New Registration and Reporting Obligations for Venture Capital Investing Companies Set to Begin in California

Beginning on March 1, 2026, “covered entities” under California’s Fair Investment Practices by Venture Capital Companies law (FIPVCC) are required to register with the Department of Financial Protection and Innovation (DFPI). Then, by April 1, 2026 and annually thereafter, the registered entities will be required to distribute a survey to the founding teams of their portfolio companies and report certain demographics on the founding teams to the DFPI. This LawFlash discusses what qualifies as a “covered entity” and the consequences of noncompliance.

We will cover the portfolio company survey requirements and open questions in a subsequent LawFlash.

What is Required to Register

Each registering covered entity must provide the following information:

• The entity’s name, email, phone number, physical address, and website
• Name, title, and email of one contact person

When and Where to Register

The law states that registrants shall provide the above information commencing March 1, 2026. The registration will be done by providing the above information via DFPI’s registration portal (via the VCC webpage), which is scheduled to open on February 25, 2026.

At present, it remains unclear whether an entity must determine whether it is a “covered entity” as of March 1, 2026 (the registration deadline) or as of December 31, 2025 (the end of the period for which the first report must be filed).

Further, the law does not provide for a notice or remediation procedure in the event an entity determines that it is not a “covered entity” and does not register as of March 1, 2026, and such determination is later challenged by the DFPI. However, the law specifies that the DFPI may notify a registered entity that it failed to update its registration information and allow 60 calendar days from the date of notice to submit the updated information without penalty. We would presume that the DFPI will follow a similar process if it determines that an investment vehicle must submit to registration.

Penalties for Non-Compliance

The commissioner of the DFPI is authorized to determine the consequences of failing to comply with FIPVCC’s requirements. Financial penalties authorized under the statute include the below:

• Monetary penalties up to $5,000 per day of noncompliance or such higher amounts as determined by the commissioner “to be sufficient to deter the covered entity from failing to comply” for any reckless or knowing violation
• Order to reimburse DFPI for its costs of enforcement, including attorney fees and investigative expenses

Who is Required to Register

To be considered a “covered entity” and subject to FIPVCC, an investment vehicle must meet all of the following criteria:

• It is a “venture capital company” (VCC) as defined in Section 260.204.9 of the California Code of Regulations (CCR), which means it satisfies one or more of the following conditions:
• 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 50% of its assets (other than short-term investments pending long-term commitment or distribution to investors), valued at cost, are “venture capital investments” or “derivative investments” as defined in Section 260.204.9 of CCR. [1] , [2]
• It is a “venture capital fund” as defined in rule 203(l)-1 under the Investment Advisers Act of 1940.
• It is a “venture capital operating company” as defined in rule 2510.3-101(d) under the Employee Retirement Income Security Act of 1974.
• It primarily engages in the business of investing in, or providing financing to, startup, early-stage, or emerging growth companies.
• It meets any of the following conditions:
  • It has headquarters in California.
  • It has a significant presence or operational office in California.
  • It makes “venture capital investments” [3] in businesses that are located in, or have significant operations in, California.
  • It solicits or receives investments from a person who is a resident of California.

As of the date of this writing, there are no guidelines regarding what constitutes “emerging growth companies” or “significant presence” in California, or whether a single investment in a California business would satisfy the California connection requirement. The statute also does not specify how recent the California investments or solicitations must be to qualify, but we can speculate that the activities in the prior calendar year are determinative because the reporting obligations under the statute apply to that time period.

Additional guidance by the DFPI is likely in the near future, and Morgan Lewis is actively monitoring all developments related to the new law.