Gov. Newsom Signs Bill Requiring Venture Capitalists Report Diversity of Businesses they Invest in

Because “Venture capital investment does not reflect the diversity of California,” Gov. Gavin Newsom signed a bill to require the venture capitalists to report annually to the California Civil Rights Department the diversity of the founding members of the businesses they invested in.

“No joke,” to quote a certain president.

Authored by Berkeley Democrat, Senator Nancy Skinner, “a social justice advocate, clean energy and climate change trailblazer,” who has never run a business or signed the front of a paycheck – she claims SB 54 will “bring transparency to venture capital investments in California and is designed to help more women- and minority-owned startups access vital VC funding. If signed into law, SB 54 would be the first such transparency measure in the nation.”

The bill has nothing to do with the business of investing in start-up businesses, other than to harm the practice. Venture capital investing has made it possible for many businesses which had a solid business plan, but needed the capital: Apple, Facebook, Amazon, Google, Intel, Microsoft, Whole Foods and many others.

In fact, early America was funded by venture capitalists for decades, albeit from England. When pilgrims made the voyage from England to America, their trips were funded, as was the “start-up” money to build their villages, businesses, and governments with the hope they would become successful and the investors would benefit financially. What would America look like if only women and pilgrims-of-color were funded under a diversity law?

In addition to the patent stupidity and needless meddling of Skinner’s SB 54, some believe the bill violates the First Amendment by prying into the gender, racial, ethnicity and sexual preference status of the founders of investment companies, creating an undue burden and invasion or privacy.

“Regardless of the bill’s constitutionality, it is so poorly drafted as to amount to gibberish,” the National Law Review said.

Well said – this is as ridiculous a bill as it is unnecessary.

Additionally, In April 2022, a judge tossed out California’s corporate diversity law to require publicly held corporations based in the state to include racial minorities and members of the LGBTQ community on their executive boards, ruling it “unconstitutional.” This was California passing another “first” with the board diversity quota, yet it followed an equally legally dubious 2018 law mandating female directors on all boards of the state’s publicly held corporations.

The judge went so far as to suggest the law was so obviously unconstitutional, it didn’t even merit a trial.

Bizarrely, Gov. Newsom signed the bill and said in his signing message he was doing so despite “problematic provisions” and “unrealistic timelines.” He said his administration will propose cleanup language in 2024.

Actually, that is the purpose and responsibility of legislative committees before the bill is signed.