Under a new state regulation, venture capital firms operating in California were supposed to submit demographic data about their portfolio companies, including the gender and race of startup founders they backed. But amid public criticism from some tech leaders, the California agency administering the new requirement suspended it just before the Wednesday deadline for firms to make their first disclosures.

“The California Department of Financial Protection and Innovation (DFPI) has announced that it plans to initiate rulemaking in response to comments by various stakeholders relating to the Fair Investment Practices by Venture Capital Companies Law,” the state agency posted on its website in mid-March. “Implementation and enforcement of the [law] will be suspended pending completion of the rulemaking and until final regulations are in place.”

California lawmakers first passed the measure in 2023, and it was signed into law shortly thereafter by Governor Gavin Newsom. For decades, women and people of color have received only a small share of overall startup funding relative to their representation in the US population. Lawmakers hoped putting more public scrutiny on investment decisions would help foster greater equity in the market, including for people who are disabled, retired military, or LGBTQ+.

The law called for venture capital and some other investment firms to file annual reports starting March 1 of last year about the overall makeup of the founding teams they had invested in and the amount of money they provided to diverse founders. Firms were meant to collect the demographic data through a voluntary survey that was then anonymized. California authorities planned to publish the filings online. Lawmakers amended the law in 2024 to delay reporting until April 1, 2026, and enable the state to levy daily fines for noncompliance.

The California Department of Financial Protection and Innovation did not immediately respond to a request for comment on the authority it used to sidestep the deadline set by lawmakers. Newsom’s office also didn’t immediately respond to a request for comment.

Financiers focused on funding entrepreneurs from underrepresented backgrounds had supported the law. But the National Venture Capital Association, the tech investment industry’s leading trade group, opposed it. The group argued that voluntary data collection would inflate diversity statistics and that publishing inaccurate data could lead to unfair attacks on investors genuinely trying to tackle diversity issues. Over the past year, the Trump administration has defunded and attacked diversity, equity, and inclusion, or DEI, initiatives in both the public and private sectors, leading many businesses and organizations to pull back from them.

In February, the venture capital association wrote to Newsom asking for the reporting deadline to be pushed back again because, in its view, the state had bungled the process. California authorities didn’t publish the standardized survey that founders were supposed to fill out until early this year, and at the time they still hadn’t introduced a way for firms to register with regulators as required by the law, according to the association. “This administrative timeline creates an environment ripe for error and threatens to produce the misleading and counterproductive data we previously warned against,” association president and CEO Bobby Franklin wrote.

Last month, as the deadline for the first reports loomed, some entrepreneurs and investors began complaining on social media about the survey effort. “The latest California malarky is a requirement for venture investors to collect/report racial and gender statistics,” wrote Blake Scholl, the founder and CEO of venture-backed aviation startup Boom Supersonic. “I want to live in a world where merit matters—not skin color or what you have between your legs.”