A concourse at San Jose International Airport is draped with five flags, representing the nation, the state, the city, and, last but not least, the state religion, which gets two: the Philadelphia Pride flag and the transgender flag. The trendiest, stripiest versions of these flags also pervade the region. The creed of social justice dominates Silicon Valley—and Sacramento is moving quickly on measures to snuff out the last wisps of resistance.
One of those measures is Senate Bill 54, recently signed into law by California governor Gavin Newsom. Under the new law, investment firms must report statistics on the sex, race, ethnicity, sexual orientation, and gender identity of the founders of the companies they fund. Covered entities must also disclose what percentage of their investments go to outfits “primarily founded” by “diverse” people.
No surprise, of course, that SB 54 uses the word “diverse” in the narrow, progressive sense. The law is not about diverse ideas or diverse business models. It is, rather, about pressing venture capitalists to fund a privileged set of individuals who see themselves a certain way. A “diverse” person, under SB 54, is someone who “self-identifies as a woman, nonbinary, Black, African American, Hispanic, Latino-Latina, Asian, Pacific Islander, Native American, Native Hawaiian, Alaskan Native, disabled, veteran or disabled veteran, lesbian, gay, bisexual, transgender, or queer.” (This list prompts many questions, starting with what it means to “self-identify” as a veteran.)
Though nominally a transparency law, SB 54 does not hide its true aim. The bill adds a chapter to the state’s Business and Professions Code entitled “Fair Investment Practices by Investment Advisors.” The goal is to force venture capitalists to slot affirmative action into their investment decision-making. The bill’s sponsor, Berkeley state senator Nancy Skinner, says that she wants to help “more women- and minority-owned startups access the venture-capital lifeline”—more, that is, than would gain access from venture capitalists acting on the profit motive alone.
Three points bear emphasis. The first and most obvious is that California is obsessed with skin color, sexual preference, and other tokens of identity. It views everything through this distorting lens and demands that everyone else do the same. Except when already bending backward for ESG or DEI, investment firms typically put returns first. California demands that they put identity first. SB 54 is intended to serve as a philanthropy program for second-tier BIPOC/LGBTQ+ startups that VC firms would not otherwise fund.
Next, progressives share with radicals and tyrants the urge to subdue any center of power that they don’t control. It is not enough that, in California, the Left dominates the government, the schools, the universities, the museums, the courts, the law firms, the hospitals, the entertainment industry, and most of Silicon Valley. The tech sector’s anti-woke, pro-growth counterculture must be brought to heel, as well. Indeed, SB 54 goes further still. Pitched as a shot at the VC firms of Sand Hill Road, the law will in fact govern a broad range of asset managers, including private equity funds and family offices. It will bring a massive amount of capital under political discipline.
Finally, California lawmakers believe that equity trumps legality. Sorting people by their race and gender, the better to discriminate among them based on these traits, is a sordid and generally unconstitutional practice. California cannot require VCs to implement identity-based funding quotas. SB 54 attempts to evade this legal restriction. Unable to give direct orders, the state’s ruling Democrats have resorted to intimidation. They want to instill fear, stir up bad press, and generate fodder for civil rights lawsuits.
Does the First Amendment tolerate such “transparency” laws? If the government cannot mandate discrimination through explicit rules, why should it be allowed openly to pursue the same course through compelled speech, cynical pressure campaigns, and threats of litigation?
SB 54’s constitutionality should be tested in court. Of course, that’s not guaranteed to happen. The many-striped, many-colored flags fly everywhere, and any VC firms that dare to sue will be branded heretics.