VC Fund Performance – Selection Bias

Some of the comments to my first post on VC Fund Performance talked about "selection bias". Selection bias means that the data is skewed because some funds do not report their data. It could be that the worst funds don’t report. Or it could be the best funds don’t report. Venture Economics, which is the source of the data I published yesterday, relies on funds to voluntarily report their data and so it could be subject to selection bias.

On the other hand, Cambridge Associates compiles benchmark data based on the funds their clients invest in. If you take money from an investor that uses Cambridge Associates as an advisor, your fund performance will be in the Cambridge Associates benchmark data.

So I thought it would be interesting to look at Venture Economics data versus Cambridge data to see if we can see the selection bias. Here is a chart of total value divided by paid in capital (TVPI) for funds that were raised from 1981 to 1997 (again I stopped at 1997  so we can focus on fully realized funds).

Tvpi_comparison

What you see from this data is that the two benchmarks are very similar (with the exception of ’94 and ’95 when Cambridge’s benchmark was much higher).

This says to me that selection bias is not really all that big of a deal in these benchmarks. What do you all think?