![]() ![]() The flatter slope indicates that the selectivity of reporting by GPs is reduced when the fund includes FOIA-eligible LPs, suggesting that FOIA-eligibility commits GPs to more accurate reporting. The solid line shows the probability that GPs report when the fund includes FOIA-eligible LPs. The steep slope of that line shows that GPs of these funds are much more likely to report when LPs report good performance. The dashed line in the figure shows the probability (at each level of LP-reported IRR) that a GP reports when the fund has no FOIA-eligible LPs. As stated above, we find that FOIA-eligible LPs are about 8.5 times more likely to report performance metrics than are other LPs.įigure 1 also shows that GPs are more likely to report when LPs report good performance. However, the number of reports from funds with FOIA-eligible LPs is much more than two times the number of reports from other funds. There are about twice as many funds with FOIA-eligible LPs than without. The darker bars show the distribution reported by LPs when the fund has no FOIA-eligible LPs. The light bars show the distribution of IRRs reported by LPs when the fund has at least one FOIA-eligible LP. To illustrate some of these findings, Figure 1 compares reporting by LPs with reporting by GPs. There is no evidence that FOIA-eligible LPs are disadvantaged in their ability to invest in top-performing funds or funds managed by highly reputable GPs.The presence of FOIA-eligible LPs appears to restrain GPs from overstating results.Selective reporting by GPs overstates VC fund returns by 4 percentage points. GPs report irregularly and are more likely to report when LPs report good performance.On average, in our sample, GPs report internal rates of return (IRRs) that are over 8 percentage points higher than IRRs reported by LPs (15.1 percent v. ![]() ![]() FOIA-eligible LPs are about 8.5 times more likely to report performance metrics than are other LPs.One advantage of using PB relative to alternative sources is that it collects performance metrics of both GPs and LPs. Our study is based on a large dataset of 7,690 fund-years from PitchBook, one of the most widely relied upon reporting services for fund-level performance, and also the data arm of the National Venture Capital Association. In a forthcoming article, my co-authors and I use performance statistics reported by FOIA-eligible LPs as a benchmark against which to assess possible bias and selective reporting by GPs. Because FOIA-eligible LPs must provide available information that is responsive to FOIA requests for VC returns, performance reported by FOIA-eligible LPs may be less susceptible to concerns about reporting bias and selective reporting. All 50 states have FOIA provisions that resemble the federal FOIA. FOIA gives the public the right to access records from federal agencies. Freedom of Information Act (FOIA) disclosure requirements or to state-level FOIA-like provisions. While performance reporting is voluntary for GPs and some LPs, it is not voluntary for LPs that are subject to the U.S. GPs and some LPs self-report performance metrics to data collection services, raising the possibility that reported performance may be overstated. Since investments in VC are not publicly traded, valuations reported by general partners (GPs) and possibly by limited partners (LPs) are based on fair value standards and are subject to judgment and selective reporting. These developments, especially those that enable less sophisticated investors to access VC, give rise to concerns about the accuracy, reliability, and possible bias or overstatement of key performance metrics. Moreover, in 2020, the SEC expanded the definition of an accredited investor to give more retail investors access to VC. In an effort to meet retail demand, mutual funds and innovative private equity firms have sought ways to provide broader access to VC. The appeal of these returns to retail investors is obvious. And a quick Google search reveals many sources touting VC returns of 15 to 30 percent (and sometimes much higher). Everyone is aware of examples of phenomenally successful VC investments, including in Amazon, Facebook, and Tesla. Moreover, there is a great deal of hype related to the potential benefits of VC. ![]() VC-backed companies raised nearly $300 billion in 2021. A large amount of money is involved: U.S. Venture capital (VC) has become an increasingly important asset class for institutional investors such as endowments, pension funds, insurance companies, and sovereign wealth funds, as well as for wealthy individuals. ![]()
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