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Colorado VC Firm Sues California Over Law Forcing Disclosure of Race, Gender, and Sexuality

Scott McClallen
Scott McClallen  |  May 28, 2026 8:00 PM

A Colorado-based venture capital firm filed a lawsuit today challenging a California law that forces venture capital funds to disclose the race, ethnicity, gender identity, and sexual orientation of the company founders in which they invest and report that data to the state. 

The lawsuit filed in the U.S. District Court of the Eastern District of California targets Khalil Mohseni, the Commissioner of the California Department of Financial Protection and Innovation.

The 1517 Fund alleges that the law violates the First and Fourteenth Amendments and the Commerce Clause of the U.S. Constitution. The nonprofit Pacific Legal Foundation represents the company. 

The lawsuit challenges Senate Bill 54, passed in 2023, as an unconstitutional overreach that violates freedom of speech, the guarantee of equal treatment under the law, and the basic principle that states cannot govern businesses with no meaningful presence within their borders. 

The 1517 Fund is apparently subject to the law because it has at least one investor in California or funds one startup there. If the company doesn't follow that law, California will fine it $5,000 per day, per violation, according to the lawsuit.


 1517-Fund_Complaint_-2026.05.28  by  scott.mcclallen 


The bill called the Fair Investment Practices by Venture Capital Companies Law requires venture capital funds to report the race, ethnicity, gender identity, and sexuality of the company founders that they fund.


The 1517 Fund gives money to early stage founders. It’s a limited liability company organized in Delaware with a principal business in Colorado. It’s invested $175 million over 15 “special purpose vehicles” and has a community of over 6,000 entrepreneurs, advisers, and supporters, according to the lawsuit.

“Sorting people by race is never a neutral act. California enacted SB 54 under the guise of fighting discrimination, but the law itself mandates race-based and sex-based classifications and creates a public pressure campaign that favors certain groups over others,” said Wilson Freeman, attorney with Pacific Legal Foundation. “1517 Fund should be free to run their fund based on merit and business judgment, not California’s preferred identity categories.”

Founded by Danielle Strachman and Michael Gibson, 1517 Fund backs young, unconventional founders working on ambitious science and technology ideas, often outside traditional academic or credentialed pathways.