The Private Market Data Illusion: Lies, Damn Lies, and PitchBook Statistics

Venture capital and private equity thrive on numbers—IRRs, TVPIs, MOICs—each acronym an attempt to quantify success in an industry where most real outcomes won’t be known for a decade.

Naturally, fund managers need a way to show they’re winning, preferably before their portfolios actually deliver returns. Enter platforms like PitchBook, Preqin, CB Insights, and the endless spreadsheets of self-reported data that investors happily consume.

But here’s the catch: in private markets, most performance data is self-reported, and like all good stories, it benefits from a little creative editing. Backfilling bias, data dredging, survivor bias—these aren't just statistical quirks. They're the secret sauce behind many pitch decks.

Backfilling Bias: The Art of Retroactive Genius

Backfilling bias is the ability to rewrite history to make yourself look smarter. Here’s how it works:

• A VC firm invests in ten startups.
• Eight go bankrupt.
• Two turn into unicorns.

What do they report? The two winners.

By the time the data shows up in Preqin or PitchBook, those unicorn investments were always part of the portfolio—but the failures? Conveniently forgotten.

This is especially common when firms report their “first fund” performance. New managers often start with small angel investments, incubators, or personal deals. If they happen to back a winner early on, great! That gets backfilled into the fund’s track record, making it look as if they’ve had the Midas touch from the start.

The message: “We’ve been delivering top-tier returns since Day 1.”
The reality: Day 1 only started after they erased the bad bets.

Data Dredging: Fishing for the Right Numbers

Fund managers love to present cherry-picked performance metrics, and in private investments, there’s no standardized reporting rule to stop them.

Take IRR (internal rate of return)—one of the most widely used and abused metrics in venture capital:

• Invest $1 million in a startup.
• It raises a new round at a higher valuation—on paper, your stake has increased in value.
• Boom! The IRR looks fantastic—even though you can’t actually sell the shares.

But what if that same company goes bankrupt three years later?

• No problem! Just don’t update the IRR until you absolutely have to.

This is the magic of paper gains—they exist when it benefits the fund and vanish quietly when things go south.

Another classic move? Changing reporting dates to maximize optics.

• A fund reports a 5-year IRR—but the calculation excludes its worst-performing investments because they haven’t yet been written down.
• Another fund highlights TVPI (Total Value to Paid-In)—but conveniently includes a company valued at $1 billion before it imploded in a down round.

Meanwhile, some PE funds play with adjusted EBITDA as if it’s a philosophical concept rather than a financial metric, removing “one-time expenses” (that occur every year) to paint a more flattering picture.

The “Marking to Market” Illusion

Public market investors mark their assets to actual market prices—private funds? Not so much.

Private equity firms often hold onto investments for years, updating valuations based on whatever metric is most convenient:

• A recent funding round? Justify a big markup!
• No funding round? Find a comparable public company (ideally, the most overpriced one possible).
• The market is crashing? Just… don’t update the valuation yet.

This is why, during market downturns, public equities immediately reflect losses, but private funds report stable or even rising valuations—until they finally capitulate years later.

As one LP famously put it:

“My public equity portfolio just dropped 30%, and somehow my private equity portfolio went up 2%—amazing.”

Survivor Bias: The Numbers That Never Existed

If a venture capital firm has launched six funds, expect them to market the best one. The others? They quietly stop mentioning them.

• PitchBook and Preqin mostly collect self-reported data.
• If a fund doesn’t perform well, they don’t have to report it.
• As a result, only the good funds remain visible in the database.

Over time, this means:

• Bad funds disappear.
• The average reported returns look higher than they actually are.
• Everyone believes venture capital returns are better than they actually are.

It’s the same reason mutual fund advertisements say “Past performance is not indicative of future results”—because the mutual funds that performed poorly don’t exist anymore.

How to Actually Read Private Investment Data Without Getting Fooled

If you want to avoid getting sucked into the illusion of private market data, apply the following filters:

1. Check if the fund cherry-picks certain deals for its track record.
   • Did they include early investments that weren’t actually part of their fund?
   • Are they counting unrealized gains as if they’re already profitable?
2. Look at how old the data is.
   • If a firm highlights its 2013-2017 returns but doesn’t mention its 2018-2023 funds, there’s a reason.
3. Be skeptical of unrealized IRR.
   • If a VC fund has an amazing IRR but no major exits, it probably relies on paper gains.
4. Compare their numbers to public markets.
   • If a PE firm claims 30% IRR in a bear market, ask how they’re managing to beat the S&P 500 by 50% while everyone else is losing money.
5. Look at how long it takes them to mark down failures.
   • If they’re still holding an investment at the same valuation years after a funding drought, they’re probably delaying bad news.

Final Thought: Trust, but Verify

Platforms like PitchBook, Preqin, and CB Insights are valuable tools, but they only report what funds give them. And funds, much like anyone selling something, will present the best possible version of reality.

So next time you see a VC or PE firm bragging about their top-tier returns, ask yourself:

• Did they backfill their data to hide bad investments?
• Are they marking their portfolio at full value despite market conditions?
• Would this performance still look impressive if all the failures were included?

Because in private investing, numbers don’t lie—but the people reporting them often do.