California passes F5 Collective sponsored bill mandating diversity reporting in venture capital.

Written by: F5 Collective

California Governor Gavin Newsom has signed F5 Collective sponsored bill SB-54 into law, mandating all venture capital funds in the state to report on the diversity of founders within their portfolio companies.

The law will come into effect in March 2025. But what does it mean for Silicon Valley?

Venture capital firms will be required to submit data on the number of women founders and people of color they’re actually investing in, bringing greater transparency to the ecosystem, while supporting accountability and – hopefully – progress.

It is a significant commitment from the State of California to address under-representation in VC funding. And what happens in Silicon Valley will have global impact. That’s one of the reasons we started there.

This is a landmark change in legislation, and the culmination of months of rallying from the F5 team. But, in so many ways, it is just the beginning.

A crisis situation

Anyone who is familiar with the venture capital sector will be familiar with the inequality in investment, particularly the under-representation of women and marginalized groups. It is a bias that has persisted for decades and it’s become nothing short of an emergency.

In 2022, out of $238 billion distributed via venture capital, only 1.9% went to women founders. That’s down from 2.4% in 2021, despite women founders out-performing their male counterparts by an average of 63%.

Black founders received less than 1% of all capital invested.

SB 54 aims to shed light on the current state of things, to foster transparency and provide insights into the allocation of funding, and the issues that need to be addressed.

Collecting data is the first step towards holding the industry accountable, and starting to move the needle.

Generational change

Through this first-of-a-kind diversity bill, we’re hoping to create generational change. If young people can’t see themselves represented in the entrepreneurs of today, they’re less likely to aspire to entrepreneurship.

That means another generation of companies building products and services that don’t serve the whole population – a situation that perpetuates inequality more broadly.

On the other hand, more diversity among our innovators means more solutions that work for everyone.

The fact is that women and people of color collectively make up the majority of today’s global consumer base. The women’s economy alone is worth around $1 trillion, and – as Barbie and Taylor Swift have shown us – that purchasing power is stronger than ever.

These are long-neglected markets that are simply too big to ignore, and failure to keep up will be a financial detriment to the entire, global tech industry.

A shift in the balance of power

If the VC sector was a corporation, based on its funding records, it surely would have been sued for discrimination by now. There’s never been more talk about equality, so why aren’t we holding venture capitalists to account?

California is home to the largest VC market and most influential tech community in the world. It’s looked up to as the benchmark of tech and startup success, and has institutional capital flows from all over the world. 

There’s no question that the success of Silicon Valley – of technology and entrepreneurship – has helped the state, and the whole of the USA, to thrive.

But with so many people excluded, can we really call this ecosystem thriving? If we don’t close the funding gap, we risk falling behind other nations, instead of leading.

SB 54 will lay bare the facts as to who’s invested in diverse founders; who’s judgment may be clouded by bias; and who has supported founders’ communities in the past. 

That’s a shift in the balance of power. Ultimately, after all, founders choose who they accept investment from, and the best founders will gravitate towards those committed to diversity.

The time is now

We know the numbers are dire. We’ve all heard it. There are so many people saying they’re ‘focusing on women’, and yet the dial is not moving.

We don’t have time to talk about change ‘in the next decade’ or ‘in our lifetime’. In fact, enough talking altogether. It’s time for action. At this point in our history, that’s what counts.

At F5 Collective, our vision is changing the trajectory now. How do we speed things up? How do we amplify impact? How do we actually make change?

We took SB 54 to California because what happens in Silicon Valley has a ripple effect all over the world. Now we’re taking the framework of the legislation and adapting it to other states and other nations and Australia is next on our list.

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