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A09786 Summary:

BILL NOA09786
 
SAME ASNo Same As
 
SPONSORBores
 
COSPNSRDickens, O'Donnell, Shimsky
 
MLTSPNSR
 
Add 390-f, Gen Bus L
 
Establishes the diversity in investment act requiring certain venture capital companies to report diversity information about its funding determinations; requires reports to be published on the venture capital companies' websites; establishes penalties for failure to complete and publish such reports.
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A09786 Text:



 
                STATE OF NEW YORK
        ________________________________________________________________________
 
                                          9786
 
                   IN ASSEMBLY
 
                                      April 9, 2024
                                       ___________
 
        Introduced  by M. of A. BORES -- read once and referred to the Committee
          on Economic Development
 
        AN ACT to amend the general  business  law,  in  relation  to  requiring
          certain  venture  capital  companies  to  report diversity information
          about its funding determinations
 
          The People of the State of New York, represented in Senate and  Assem-
        bly, do enact as follows:

     1    Section  1. This act shall be known and may be cited as the "diversity
     2  in investment act".
     3    § 2. The general business law is amended by adding a new section 390-f
     4  to read as follows:
     5    § 390-f. Diversity in investment practices by venture  capital  compa-
     6  nies.    1. For the purposes of this section, unless the context clearly
     7  has a different meaning:
     8    (a) "Venture capital company" means an entity that meets at least  one
     9  of the following criteria:
    10    (1) is a venture capital fund;
    11    (2) is a venture capital operating company; or
    12    (3)  on at least one occasion during the annual period commencing with
    13  the date of its initial capitalization, and on  at  least  one  occasion
    14  during  each  annual  period  thereafter,  at least fifty percent of its
    15  assets (other than short-term investments pending  long-term  commitment
    16  or  distribution  to  investors),  valued  at  cost, are venture capital
    17  investments or derivative investments.
    18    (b) "Venture capital fund" means an entity as defined in rule 203(l)-1
    19  adopted by  the securities and exchange commission under the  investment
    20  advisers act of 1940.
    21    (c)  "Venture capital operating company" means an entity as defined in
    22  rule 2510.3-101(d) adopted by the  United  States  department  of  labor
    23  under the employee retirement income security act of 1974.
    24    (d)    "Venture capital investment" means an acquisition of securities
    25  in an operating company as to which the investment adviser,  the  entity
    26  advised by the investment adviser, or an affiliated person of either has
    27  or obtains management rights.
 
         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD14626-04-4

        A. 9786                             2
 
     1    (e)  "Management  rights"  means  the right, obtained contractually or
     2  through ownership of securities, either through one person alone  or  in
     3  conjunction  with  one  or  more  persons  acting together or through an
     4  affiliated person, to substantially  participate  in,  to  substantially
     5  influence  the  conduct of, or to provide or to offer to provide signif-
     6  icant guidance and counsel concerning,  the  management,  operations  or
     7  business  objectives of the operating company in which the venture capi-
     8  tal investment is made.
     9    (f) "Derivative investment" means an acquisition of  securities  by  a
    10  venture  capital  company  in  the  ordinary  course  of its business in
    11  exchange for an existing venture capital  investment  either:  upon  the
    12  exercise or conversion of the existing venture capital investment; or in
    13  connection  with  a public offering of securities or the merger or reor-
    14  ganization of the operating company to which the existing venture  capi-
    15  tal investment relates.
    16    (g)  "Covered  entity" means a venture capital company that meets both
    17  of the following criteria:
    18    (1) The venture capital company meets either of the  following  crite-
    19  ria:
    20    (i)  The  venture capital company primarily engages in the business of
    21  investing in, or providing financing to, startup, early-stage, or emerg-
    22  ing growth companies.
    23    (ii) The venture capital company manages assets on  behalf  of  third-
    24  party  investors,  including,  but  not  limited to, investments made on
    25  behalf of a state or local retirement or pension system.
    26    (2) The venture capital company meets any of the following criteria:
    27    (i) The venture capital company is headquartered in the state  of  New
    28  York.
    29    (ii)  The venture capital company has a significant presence or opera-
    30  tional office in the state of New York.
    31    (iii) The venture capital company makes venture capital investments in
    32  businesses that are located in, or have significant operations  in,  the
    33  state of New York.
    34    (iv) The venture capital company solicits or receives investments from
    35  a person who is a resident of the state of New York.
    36    (h)  "Diverse  founding  team member" means a founding team member who
    37  self-identifies as a woman, nonbinary, Black, African American,  Hispan-
    38  ic,  Latino-Latina,  Asian,  Pacific  Islander,  Native American, Native
    39  Hawaiian, Alaskan Native, disabled, veteran or disabled veteran,  lesbi-
    40  an, gay, bisexual, transgender, or queer.
    41    (i) "Founding team member" means either of the following:
    42    (1) A person who satisfies all of the following conditions:
    43    (i)  The person owned initial shares or similar ownership interests of
    44  the business.
    45    (ii) The person contributed to the concept of, research for,  develop-
    46  ment  of,  or  work performed by the business before initial shares were
    47  issued.
    48    (iii) The person was not a passive investor in the business.
    49    (2) A person who has been designated as the chief  executive  officer,
    50  president, chief financial officer, or manager of a business, or who has
    51  been  designated with a role with a similar level of authority as any of
    52  those positions.
    53    (j) "Non-compliance" means that a covered entity:
    54    (1) intentionally filed misleading diversity data;

        A. 9786                             3
 
     1    (2) mistakenly filed incorrect data and failed to  correct  such  data
     2  within  six months of receiving notification from the attorney general's
     3  office of such incorrect data;
     4    (3)  failed  to  file the report required pursuant to this section and
     5  failed to file such report within six months of  receiving  notification
     6  from  the attorney general's office of such failure to file such report;
     7  or
     8    (4) failed to keep accurate records for the amount  of  time  required
     9  pursuant to subdivision five of this section.
    10    (k)  "Primarily  founded  by  diverse  founding  team members" means a
    11  founding team for which more than one-half of the founding team  members
    12  responded to the survey described in paragraph (b) of subdivision two of
    13  this  section  and  at  least  one-half of the founding team members are
    14  diverse founding team members.
    15    2. (a) Commencing on March first, two thousand twenty-five  or  ninety
    16  days  after  the effective date of this section, whichever is later, and
    17  annually thereafter, a covered entity shall report all of the  following
    18  information about its funding determinations:
    19    (1)  At  an aggregated level, all of the following information for the
    20  founding teams of all of the businesses in which the covered entity made
    21  a venture capital investment in the prior calendar year  to  the  extent
    22  the  information  was provided pursuant to the survey described in para-
    23  graph (b) of this subdivision:
    24    (i) The gender identity of each member of the founding team, including
    25  nonbinary and gender-fluid identities.
    26    (ii) The race of each member of the founding team.
    27    (iii) The ethnicity of each member of the founding team.
    28    (iv) The disability status of each member of the founding team.
    29    (v) Whether any member of the founding team identifies as LGBTQ+.
    30    (vi) Whether any member of the founding team is a veteran or  a  disa-
    31  bled veteran.
    32    (vii)  Whether  any  member  of the founding team is a resident of the
    33  state of New York.
    34    (viii) Whether any member of the founding team declined to provide any
    35  of the information described in clauses (i) to (vii)  of  this  subpara-
    36  graph.
    37    (2)  (i) During the prior calendar year, the number of venture capital
    38  investments to businesses primarily founded  by  diverse  founding  team
    39  members,  as a percentage of the total number of venture capital invest-
    40  ments the covered entity made, in the aggregate and broken down into the
    41  categories described in clauses (i) to (vi) of subparagraph one of  this
    42  paragraph.
    43    (ii)  The  information provided pursuant to this subparagraph shall be
    44  anonymized.
    45    (3) During the prior calendar year, the total amount of venture  capi-
    46  tal investments to businesses primarily founded by diverse founding team
    47  members,  as  a  percentage  of  venture capital investments made by the
    48  covered entity, in the aggregate and broken  down  into  the  categories
    49  described in clauses (i) to (vi) of subparagraph one of this paragraph.
    50    (4)  The  total  amount  of  money  in venture capital investments the
    51  covered entity invested in each business during the prior calendar year.
    52    (5) The principal place of business  of  each  company  in  which  the
    53  covered entity made a venture capital investment during the prior calen-
    54  dar year.
    55    (b)  (1)  A  covered  entity  shall obtain the information required by
    56  paragraph (a) of this subdivision by providing each founding team member

        A. 9786                             4
 
     1  of a business that has received funding from a venture  capital  company
     2  to  which  the covered entity has acted as an investment adviser with an
     3  opportunity to participate in a survey for the purpose of collecting the
     4  information.
     5    (2)  The  survey  shall  include  a "decline to state" option for each
     6  question on the survey.
     7    (3) A covered entity shall provide a written disclosure to each found-
     8  ing team member prior to, or concurrently with, the survey described  in
     9  subparagraph one of this paragraph that states all of the following:
    10    (i)  The founding team member's decision to disclose their demographic
    11  information is voluntary.
    12    (ii) No adverse action will be taken against the founding team  member
    13  if they decline to participate in the survey.
    14    (4) A covered entity shall not provide the survey described in subpar-
    15  agraph  one  of  this paragraph and the disclosure described in subpara-
    16  graph three of this paragraph to a founding team member until after  the
    17  covered  entity  has  executed an investment agreement with the business
    18  and made the first transfer of funds.
    19    (5) A covered entity shall not in any way encourage,  incentivize,  or
    20  attempt  to  influence the decision of a founding team member to partic-
    21  ipate in the survey described in subparagraph one of this paragraph.
    22    (c) A covered entity required  to  conduct  the  survey  described  in
    23  subparagraph  one  of paragraph (b) of this subdivision shall do both of
    24  the following:
    25    (1) Collect survey response data from the founding team members  in  a
    26  manner that does not associate the survey response data with an individ-
    27  ual founding team member.
    28    (2)  Report the survey response data pursuant to paragraph (a) of this
    29  subdivision in a manner that does not associate the survey response data
    30  with an individual founding team member.
    31    3. A covered entity may satisfy the requirements of  this  section  by
    32  providing  a  report  prepared  by a business that controls each venture
    33  capital company to which the  covered  entity  acted  as  an  investment
    34  adviser  at  any  time  during  the  prior  calendar  year if the report
    35  contains all of the information required by paragraph (a) of subdivision
    36  two of this section.
    37    4. A covered entity shall make the reports received pursuant to subdi-
    38  vision two of this section readily accessible,  easily  searchable,  and
    39  easily  downloadable on the covered entity's internet website or another
    40  easily accessible public forum.
    41    5. A covered entity shall make and keep records related to  its  obli-
    42  gations  under this section. All records related to a report pursuant to
    43  subdivision two of this section shall be preserved  for  at  least  four
    44  years after the covered entity delivers the report.
    45    6. Whenever there shall be a violation of this section, an application
    46  may  be  made  by  the attorney general in the name of the people of the
    47  state of New York to a court or justice having jurisdiction by a special
    48  proceeding to issue an injunction, and upon notice to the  defendant  of
    49  not  less than five days, to enjoin and restrain the continuance of such
    50  violations; and if it shall appear to the satisfaction of the  court  or
    51  justice  that  the  defendant  has,  in  fact, violated this article, an
    52  injunction may be  issued  by  such  court  or  justice,  enjoining  and
    53  restraining  any  further  violation,  without  requiring proof that any
    54  person has, in fact, been injured or  damaged  thereby.    In  any  such
    55  proceeding,  the  court  may  make allowances to the attorney general as
    56  provided in paragraph six of subdivision  (a)  of  section  eighty-three

        A. 9786                             5
 
     1  hundred  three  of the civil practice law and rules, and direct restitu-
     2  tion.  Whenever the court shall determine that a violation of this arti-
     3  cle has occurred, the court may impose a civil penalty of not more  than
     4  one  thousand  dollars  per  day  during such time of non-compliance for
     5  firms with under one hundred fifty million dollars in total assets,  not
     6  more  than  three  thousand  dollars  per day for firms with between one
     7  hundred fifty million dollars  and  one  billion  five  hundred  million
     8  dollars  in  assets, and not more than five thousand dollars per day for
     9  firms with over one billion five hundred million dollars in  assets.  In
    10  connection  with  any such proposed application, the attorney general is
    11  authorized to take proof and make a determination of the relevant  facts
    12  and  to  issue  subpoenas  in accordance with the civil practice law and
    13  rules.
    14    § 3. This act shall take effect immediately.
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