Venture capital investment has been instrumental in the creation of numerous high tech businesses that have quite literally changed the world. There is no gainsaying the importance of venture capital firms to California. Therefore, one might expect that the California legislature would exhibit a better understanding and more care in enacting legislation affecting the industry.

Earlier this year, I wrote about a bill, SB 54, that would have required institutional Investors, securities and real estate brokers, and others to report on the diversity status of "founding teams". At the time, I criticized the bill as being "so poorly drafted as to amount to gibberish". In July, I wrote about the bill again, pointing out its nonsensical definition of "covered person". The legislature amended the bill in September, renaming and redefining the category of persons subject to reporting (I don't know whether this was intended to address the concerns raised in my blog post). I still believe that the legislature has missed the mark.

Over the weekend, Governor Newsom signed SB 54, even while acknowledging in his signing message that it contained "problematic provisions":

However, this bill contains problematic provisions and unrealistic timelines that could present barriers to successful implementation and enforcement. Within California's large and complex venture capital environment, this bill would require CRD [Civil Rights Division] to undertake significant and ongoing investigations just to determine whether any given entity meets the criteria set forth in the bill - and the department is not situated to perform this work. Additionally, establishing this expertise, as well as any resultant work from administering the law, creates significant, ongoing General Fund cost pressures .

The Governor further stated that "will propose cleanup language as part of the 2024-25 Governor's Budget". While this sounds promising, it will insulate these changes from legislative and public focus as they will be buried within the state's massive budget bill. It would have been better governance had the Governor vetoed the bill and committed to work with the author on a better bill in the next session.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.