Bias in the Reporting of Venture Capital Performance: The Disciplinary Role of FOIA

Using a large sample of fund-years, we investigate the performance reporting behaviors of general partners (GPs) and limited partners (LPs) of Venture Capital (VC) funds. Self-reporting by GPs raises the concern that the information investors rely on may be biased, either due to selective reporting from the most successful funds or from overstated performance. Our results indicate that selective reporting is the more important concern: GPs report irregularly and are more likely to report when LPs report good performance. We estimate that selective reporting by GPs overstates VC fund returns by 4 percentage points. We look specifically at the disciplinary role of FOIA in mitigating distortions in reported performance. FOIA-eligible LPs are 8.5 times more likely to report than are other LPs. The presence of FOIA-eligible LPs may also restrain GPs from overstating results. We find no evidence that FOIA-eligible LPs are disadvantaged in their ability to invest in top-performing funds or funds managed by the most reputable GPs.